Guest Post: Paul Ryan's Budget Arithmetic Makes No Sense

Tyler Durden's picture

Submitted by Nomi Prins

Paul Ryan's Budget Arithmetic Makes no Sense

Leaving aside for the moment
the petty let's be children and see if we can grind the government to a
halt game going on amongst parties and sub-parties, and the fact that
both parties blessed every single debt cap increase placed before them
in equal measure over the past decade of Bush *2 + Obama * 1/2, I just want to focus on House Budget
Chairman, Paul Ryan's, corporate tax decrease proposal for a second -
because the math is so bizarre.

Looking at 2010 - the Federal government took in about $2.1 trillion worth of tax revenues, 8.9% of those
came from corporate taxes, or about $187 billion. That left individuals
footing 41.5% of the bill through individual income tax and another 40%
through social security and retirement taxes (get it - we do pay into
the system, $840 billion dollars in 2010 to be exact), with the
remainder of tax receipts coming from excise and 'other' sources. (The
percentage of federal tax revenues that corporations paid in 2009 was
6.6% - the lowest on record.)

The notion that slicing the corporate tax rate from 35% to 25% would spur large corporations to either:

a) fire their accounting staffs and do their returns on Turbo Tax 

b) willfully bring all their relevant earnings onshore

c) engage in major hiring sprees or

d) pay rank-and-file workers proportionately more and CEOs proportionately less  than in the past 

is obviously ludicrous, though not to
Ryan or the GOP or apparently, the portion of the Dems that aren't
spitting at them with their calculators. 

Besides that, it's not supported by
fact. To the contrary, since the 1930s, each year in which corporations
paid less than 10% of the overall federal tax receipts, coincided with
recession and unemployment spikes. The last time that the overall
percentage of corporate tax receipts was greater than that of individual
ones was in 1943. In other words, when things are shaky for the overall
economy, corporations bear a proportionately lower share of tax
revenues than individuals. This is not exclusively, but certainly
probably, due to their ability to move stuff around their books and hire
scores of CPA's to help.

During the 1920s, Treasury Secretary,
Andrew Mellon substantially hacked tax rates for companies and the
general public under the premise that a magical 20% tax rate would
discourage the rich and the corporate from seeking off-shore tax havens
and on-shore loopholes. Though Mellon did manage to balance the budget
after World War I, the tax practice led to an over-bloated and
over-leveraged financial economy during the 1920s followed by the Great
Depression. It didn't make charities out of companies. Even though it
was more progressive than what we have today.

Sure, the budget stands a bloated mess.
But the revenue side and mechanism is far more broken than the spending
side, which itself grew due to the cost of wars, weapons and financial
subsidies to the nation's richest people and corporations (especially
the Wall Street ones). Lowering the corporate tax rate would merely
reduce the share of corporate taxes getting to the federal till even
further. 

Companies like GE may operate under a
35% tax rate in theory, but in practice that rate could be 50% or 0% and
the result would be the same, not only because of the complexity of the
loopholes in the corporate tax code, but also because there is no
wherewithal in the government, or the Treasury department to do anything
about it. Hell, the Treasury Department assisted GE Capital, GE's
financial, er - hedge fund - arm, when it needed a 'crisis' bailout. The
FDIC stepped in with a $140 billion guarantee for their debt in 2008
and 2009. Not only didn't GE pay any taxes during those years, but for
2010, the company managed to manufacture its largest tax refund - $4.1
billion.

How is lowering the corporate tax rate
going to change that exactly? Uh, it's not. What it would do, is create a
wider budget gap and send more politicians scratching their heads over
why. So, it's really just a super-bad and dumb idea.