Stockholders Lose Dividends with High Corporate Tax Rates
December 3, 2014
The corporate income tax may technically be a tax on business, but consumers, investors and workers are the ones who ultimately bear the tax burden. Dale Bandy, writing for the American Thinker, touches on some of the "hidden" consequences of the corporate income tax.
When a corporation is hit with higher taxes, it makes efforts to compensate for those lost dollars -- whether in raising its prices (hurting consumers) or docking wages or cutting back jobs (hurting workers). Moreover, the tax leads businesses to expand abroad and retain profits rather than paying higher dividends to shareholders. Bandy explains:
- The combined federal and state corporate tax rate in the United States is 39.1 percent, much higher than the average of other OECD nations, which is 25 percent.
- American corporations with foreign subsidiaries are not taxed on that foreign income unless it brings that income into the United States, so parent corporations are unwilling to distribute those earnings to the parent company's shareholders as dividends, as they will be taxed heavily on that income.
- Typically, American companies have paid dividends worth 4 to 5 percent of stock value. Over the last several years, however, dividends have been closer to 2 percent, as corporations have held back on dividend distribution and instead reinvested their earnings overseas.
Bandy urges Congress to reduce the corporate tax rate. The NCPA has modeled abolishing the corporate income tax entirely, a move that would increase investment, send wages rising 12 to 13 percent and increase GDP by 8 to 10 percent.
Source: Dale Bandy, "The Harsh Realities of the Corporate Income Tax," American Thinker, November 28, 2014.
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