While economic principles can be complex, the essential premise behind the call for lower taxation is really quite simple: taxes and costly regulations kill businesses. Paying high taxes means less profit. Less profit means that there is less money for innovation and growth. That means less hiring and employment for workers. That means fewer jobs.
Of course, it’s a bit more complex than all that, but it’s easy to understand why high taxes are not only killers of ambition, but killers of employment opportunities for the middle and lower classes.
That’s what troubles the Boston Beer Company and the founder, Jim Koch, who testified before a Senate hearing last week.
In his testimony before the Senate Homeland Security and Governmental Affairs Subcommittee on Investigations last Thursday, Koch blasted U.S. corporate tax rates and claimed that in all likelihood, he would be the last American owner of a beer company.
Koch stated that roughly 90% of American beer production is made by foreign-own businesses. Because other nations seem to have a better grasp on capitalism than the U.S., these foreign-owned businesses enjoy significantly lower tax rates than what Koch has to pay.
This put Koch at a disadvantage because while he pays around 38%, a foreign-owned company would be looking at around 25-30% taxation.
“We are vulnerable because we currently report all of our income in the United States and pay a tax rate of about 38 percent on that income,” Koch stated. “Because of our broken corporate tax system, I can honestly say that I will likely be the last American owner of the Boston Beer Company.”
“That means that a dollar of pre-tax earnings is worth about sixty-two cents under American ownership but about seventy-two cents under foreign ownership,” said Koch. “To put it another way, Boston Beer Company is worth 16 percent more to a foreign owner simply because of the current U.S. corporate tax structure.”
“There are solutions,” Koch stated. “Cut the highest-in-the-world U.S. corporate tax rate to the mid-20s. And bring America’s international tax system in line with the rest of the industrialized world, by allowing U.S. companies to bring their overseas earnings home without additional taxes—just like the British and Canadians (among others) allow their businesses to do.”
At the beginning of the hearing Ohio Republican Sen. Rob Portman offered a similar analysis, saying,
“Our tax code makes it hard to be an American company, and puts U.S. workers at a disadvantage,” said Portman. “At a 39 percent combined state and federal rate, the United States has the highest corporate rate in the industrialized world.”
“What’s happening is that the current tax system increasingly drives U.S. businesses into the hands of those best able to reduce their tax liabilities, not necessarily those best equipped to create jobs and increase wages here at home,” Portman continued. “That is, of course, bad for American workers and bad for our long-term competitiveness as a country.”
Time and time again, lawmakers wonder what happened to American industry while simultaneously doing everything they can to undermine it. One can harvest an apple tree many times, but chop it down to a stump and the tree will no longer bear fruit.
Likewise, allowing a business to grow and expand not only vitalizes the economy, but produces many more job positions occupied by workers- workers who will pay taxes.
If only revitalizing our economy was half as important to America’s liberals as punishing the rich…