The 2014 midterm elections have come and gone and the media has certainly put a spin on the results, as they talked about high voter turnout among the party in power, grumbling over the state of the economy and the need for a shakeup in our nation’s capital.
But the one thing that surprises me is how little our leaders look to our history to shape policy in the worst economic downturn since the 1930s. In fact, like most Americans, I’m astounded at the lack of imagination in our leaders during the Great Recession.
History does provide a map for us in the economy that just doesn’t work for many people. In the early 1930s, President Franklin Roosevelt established the National Recovery Administration, eventually declared unconstitutional. The NRA allowed industries to set codes of fair competition in an attempt to boost the purchasing power of the American consumer. However, and less talked about, the NRA also suspended anti-trust laws in an attempt to help business increase economic output.
Today, the business output, and the economic output of the country as a whole, could be boosted by the abolition of the corporate income tax. Some say that corporations would be shirking their duty if they don’t pay taxes, but the corporate income tax is borne by the American consumer because corporations pass on the cost of the tax to consumers. Another point made by opponents of this viewpoint is that corporations use loopholes to dodge paying their fair of taxes. However, companies also spend lots of money on tax lawyers and tax accountants in order to dodge such taxes legally.
The government would recover the income lost from the abolition of the corporate income tax by moving to a value added tax. A VAT is a tax placed on a product whenever value is added in each stage of production and at the final sale. For instance, a company that manufactured clothing would pay taxes on cloth and all of the other materials used to manufacture the clothing. The retailers and wholesalers, a part of the value added process, and the customer, also a part of the process, would also pay a portion of the tax. In countries that use a VAT, usually the tax is applied to imports.
With the abolition of the corporate income tax, the cost of doing business would be reduced and employers would have more capital to hire employees as well as boost economic output. This change would be a boost for the consumer, worker, business and the economy as a whole.