You kiss your momma with that ad hominem? 
- Edit 2
- Edit 2Before modification by Joel at 27/02/2012 09:31:58 AM
Company A makes $1 million in profit. Let's have a 35% tax rate plus, say, an 8% state tax rate, that means that in Year 1 Company A is paying $420,000 in taxes (42%).
If in Year 2 it makes $1 million in profit but subtracts the $80,000 in state taxes from the previous year, that means its net profit is $920,000, on which it will still pay 42% or $386,400, but on the slightly smaller amount. However, this is still $36,400 more than if it had not paid the state taxes. On average, the deduction has only halved the effective state tax rate.
Also, because that benefit is for the PREVIOUS year's state tax, rather than the CURRENT year's state tax, it can lead to fluctuations. For example, let's say that Year 2 profit was $0. The state tax deduction is only good to the extent the corporation can roll it forward. If it has several bad years in a row, chances are it won't be able to, so it will pay the full 8% extra for its boom year.
If in Year 2 it makes $1 million in profit but subtracts the $80,000 in state taxes from the previous year, that means its net profit is $920,000, on which it will still pay 42% or $386,400, but on the slightly smaller amount. However, this is still $36,400 more than if it had not paid the state taxes. On average, the deduction has only halved the effective state tax rate.
Also, because that benefit is for the PREVIOUS year's state tax, rather than the CURRENT year's state tax, it can lead to fluctuations. For example, let's say that Year 2 profit was $0. The state tax deduction is only good to the extent the corporation can roll it forward. If it has several bad years in a row, chances are it won't be able to, so it will pay the full 8% extra for its boom year.
OK, you guys who think my posts too general need to get together with the ones who think them too long and decide which approach the lot of you want, 'cos I cannot satisfy you all (heaven knows it is not for lack of trying.)
To the matter at hand: In that example, yes, the deduction effectively halves the state income tax rate. Of course, that only makes it about 3.5%, and even that rate is impossible in 34 states (elsewhere it is "merely" at or near the highest rates those states charge.) Again, I am aware of the distinction but, also once again, think you make far too much of it, because it does not significantly alter the bottom line. Even at or above the highest state corporate income tax rate in the country, the total is just 3.5% higher than with NO state income tax (as in four states.) It is an issue with state rather than federal taxes to the marginal extent it is an issue at all. It is not zero, but fairly trivial, even in the MOST EXTREME examples; obviously it is even more trivial less extreme examples.
If you disagree, and feel a 3.5% effective tax increase egregious, surely federal loopholes effectively LOWERING taxes 23%, 26% or even 35% is many times more egregious? Say, about 6-10 times?
Yes, state and local taxes are too often overlooked, to the detriment of the debate; they encourage corporations to hold the federal government solely responsible for their entire tax burden. Even though an IA corporation with billion dollar profits is probably paying IA more taxes than it pays the US. It remains a complaint against STATE corporate taxes, not federal, and only obscures the generosity of US corporate taxes if we let it.Also, your statement
shows how little you know about how business is actually conducted. US companies are forced to incorporate domestic entities in most jurisdictions or have a "branch office", which is usually taxed the same way and has the same legal effect. Where an entity is incorporated is irrelevant, because the ability to nationalize a company also depends on the nationalizing government's ability to extend its fiat beyond its borders.
US companies build FACTORIES in Third World despotisms; they do NOT incorporate there, because the kind of governments willing to grant low corporate income tax rates tend to be the kind who simply seize corporate income if it becomes large enough to warrant the effort.
shows how little you know about how business is actually conducted. US companies are forced to incorporate domestic entities in most jurisdictions or have a "branch office", which is usually taxed the same way and has the same legal effect. Where an entity is incorporated is irrelevant, because the ability to nationalize a company also depends on the nationalizing government's ability to extend its fiat beyond its borders.
If home office location is irrelevant, why do so many choose DE? Dumb luck, or the fact DE is the black hole of incorporation, from whence no records can escape?
A branch office or foreign subsidiary is not a global HQ, as we BOTH know. Thinking me an idiot is one thing; HOPING me one smacks of desperation. 
Yes, multinationals maintain foreign subsidiaries; that is what makes them "multinationals" and allows them to "sell" the home office "products," often at inflated prices, to dodge US taxes. They do not run their far flung holdings from those subsidiaries nor, despite supposedly lower taxes, store the bulk of profits there. They seem to prefer storing them in the Caymans, a hallmark of ethical, reputable law abiding drug cartels and other businesses.
We keep hearing US corporate tax rates WILL drive US businesses overseas, but Aramco is the only one I know that HAS picked up and moved (ironically, in response to imminents signs of nationalization that proved accurate.) They move production to places with cheap/slave labor and without burdensome consumer and environmental regulations. The board rooms stay in America where they have always been, secure from both higher tax rates everywhere else in the developed world and authoritarian regimes providing them cheap labor in the undeveloped world. GM builds cars in Mexico, but the HQ is in Detroit where it has always been. Wal$Mart is very grateful for (though not TO) Chinese labor giving it nearly half a trillion dollars annual revenue, but the global HQ is still in AR. Apple et al. are similarly appreciative (for SOME reason they prefer a Taiwanese contractors Chinese subsidiaries to creating their own Chinese subsidiaries) but its HQ remains in CA. In fact, a glance at the companies with the most revenue (though not necessarily profits) shows that whether we consider the top 10, 20, 25 or 50, roughly a third remain based in America, despite subsidiaries around the world.
Where did all that money go? Only about 20% of it (MAYBE) is taxed by state and federal government, so it is not going there. Unemployment remains high and productivity remains low, so it is not being reinvested. Did it just disappear?
Or is it being held in the form of seized assets and off shore bank accounts? That is not even the best part though: Of the 100 companies with the most revenue, 81 are headquartered in the US, socialist Europe or Japan (whose corporate income tax rate is higher than even Americas NOMINAL one.) Of the rest, 10 are state owned (including Statoil here in socialist Norway, Petróleos de Venezuela in Chavezs Venezuela and Petrobras in Brazil, still enjoying the economic boom their socialist president inaugurated.) Only FOUR are in China (though it is probably fair to include Taiwans Foxconn as a fifth,) one of which is a state owned power grid that lost nearly $350 million last year. Laissez-faire economies may be more corporate-friendly, but the only evidence is South Koreas Samsung, SK Group and Hyundai. Three out of 100 (none in the top 20.) Go, supply-side economics.
