Mitt Romney and Paul Ryan Corporate Tax Plan Deserves Serious Consideration

Impact

Much like the Capital One commercials with Jimmy Fallon and Kylie, the adorable baby who does not want 50% more cash back, it's time for voters to think about the difference between tax rates and tax revenues -- and stop forwarding internet memes that say Mitt Romney wants middle class taxpayers to pay thousands of dollars to the rich. In a word, that's moronic. At the least, before you forward some meme of that nature, familiarize yourself with the basic revenue crisis at hand.

"Blue-eyed devil" Paul Ryan and his running mate, Mormon financial wizard Mitt Romney, do want to cut corporate tax rates. The hope is that a cut in rates and reduction in loopholes will produce more stability and more revenue. Perhaps even as much as "50% more cash back." It's the same strategy adopted by the majority of the other G-7 economies over the past four to five years -- with greatest success experienced by Canada, which economy is growing at two to three times the rate of the U.S., whose budget is near-balanced -- with a deficit well under $1 trillion -- and which lowered its corporate tax rate to a flat 15% on January 1, 2012. 

One of the key provisions in the Romney campaign platform is a reduction in U.S. corporate income tax rates to 25% and elimination of tax loopholes. The U.S. already has the second-highest corporate tax rate in the world, behind only Japan. The same people who argue that more taxes on U.S. corporations are needed correctly point out that corporate tax revenue fell to a 40-year low in 2011.

In the view of Democrats, this is of course "a direct result of the failed policies of the past ten years" (bypassing 2009-2011, as if they did not exist). The shockingly low corporate tax revenues coincide with the advent and sunset of the Obama "stimulus" and have continued with the economy growing at a stunted rate of approximately 1%. 

California is an excellent example for the rest of the U.S. to consider. It is by far the highest tax state in the nation -- especially when fees, local taxes and special levies are considered. The state's formerly world-leading K-12 and higher education systems are failing, even as budgets have increased over 70% over the past two decades. During the same period, enrollments have increased only 7%. Undergraduates can now attend private colleges both in state and in other states for much less in tuition and fees than they can at University of California campuses. The same bad fiscal scenario has played out in cities and counties, with some cities like San Bernardino already filing for bankruptcy. 

Like France, the U.S. can solve this problem by simply raising taxes to 75% on Richie Rich, Donald Trump, and the "fat cat" corporations, can't it? Taxes are currently assessed on earnings during specified periods, not by confiscation of corporate or personal assets. So, it's worth a look at what's going to come in under present tax policies. 

Publically traded companies report earnings regularly, which are covered via numerous business sites. August 3 was a major day for corporate earnings reports for fiscal periods ending June 30, 2012. A brief glance at Bloomberg's earnings reports shows a remarkable trend. The majority of companies reporting on August 3, 2012 lost money in the fiscal period ending June 30, 2012, with the remainder earning much less than 1% or $1 per share, except for one remarkable standout: Berkshire Hathaway.

Warren Buffett's Berkshire Hathaway, the 8th largest publically-traded company in the world, employs more than 260,000 people worldwide in a dizzying array of subsidiary corporations in fields ranging from insurance to aerospace, utility companies to railroads, and clothing/home furnishings/building products. Berkshire Hathaway posted a stunning $999.99 increase in earnings per-share on its valuable A Stock, which was worth $126,800 at close of business on Friday. 

BRK/A has posted a 1-year return of 18.19%. This is testament to Berkshire Hathaway's successful business model. It's also an extreme outlier in the current U.S. business environment. 

Given the fact that Berkshire Hathaway is making money on a global economy-leading basis, maybe Warren Buffett could fund the deficit on his own by paying more taxes than his secretary. 

No, he couldn't. Every asset the company has is less than one third of the current federal budget gap. The U.S. government is currently spending 40% more than it's receiving for a total gap of $1.3 trillion, the majority of which the country is borrowing "from itself." This shortfall will be larger in 2013, with nearly all companies reporting tiny earnings gains or losses as of mid-2012. 

Well, what about Richie Rich who owns three McDonalds and his profits and earnings? More Americans work for small- to mid-size companies than for major multinational companies listed on the stock exchanges. The only job growth seen in the private sector over the past four years has been in small businesses, not Berkshire Hathaway-sized conglomerates. Women-owned businesses have led this trend. Reported earnings of large corporations always reflect trends among smaller, private companies. Despite their hard work, smaller companies are also losing money -- or have become de-facto nonprofits as well.

It's very likely that the people at Berkshire Hathaway would be pleased by an Obama-Biden win, since they have clearly figured out how to game the current system in a spectacular fashion. However, outside of Warren Buffett's world, few engaged in international commerce want a repeat of Obama-Biden. With the selection of Paul Ryan, budget and tax expert, as Romney's VP, the ticket is the clear choice for businesses of any size.

What advocates don't comprehend is that Romney and Ryan are also the clear ticket of choice for increased government revenues and recovery of fiscal stability. Even if Obama-Biden were to win in a landslide and institute Francois Hollande policies of a 75% tax rate on the wealthy and corporations, the long-promised manna will not fall from government coffers upon the suffering masses. 75% of a loss or break-even is zero. In a bad economy, Kylie will never get 50% more cash back.