Untaxing-III (Laffer Curve) ch 9:     A Clear Macro-Economic View Of Capitalism

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Taxing begins with a clear macro-economic view of the US economy. The Gross Domestic Product (GDP) of the US is $14.72 trillion (CIA Fact Book, 2011).

“US multinationals represent less than 1 percent of all US companies, yet they contribute disproportionately to the US economy’s growth and health in many ways.”
(Mckinsey, 2010).

The US has 155 million labor units available for employment by 29.6 million businesses (Score, 2009). 19,893 of these 29.6 million businesses are public companies with current market values totaling $17.14 trillion.

Please pay close attention to what is being emphasized, perhaps for the first time. This means that 19,893 US public companies are worth more than the US GDP for one year and are worth more than the remaining 29.6 million businesses.

It is good to have the Laffer curve adding to economic tax policy thinking. But the thinking (or lack of) prompted by the Laffer curve focuses the policy makers negatively on how much tax can be extracted from individual wages and corporate profits. Their focus should rather be on what taxes are necessary to run an efficient government when the private sector is the more efficient producer of value. Within the private sector is a minority of public companies that produces the majority of economic wealth.

The taxation of public company profits is a startling example of the short-sightedness of the Laffer curve. This Laffer curve fails to take into consideration the foundational roles played by capitalism and its delivery vehicle — the public company — in national economies. The equity value produced by public companies presents multiple taxation opportunities for governments. Without the quest for profits in the form of equity and dividends, there would be no equity produced or jobs created.

Ill-conceived tax policy suppresses jobs and the market value of the public company by taxing its profits. The negative consequence of taxing corporate profits is to suppress the short-long term capital gains taxes that can be paid by shareholders as a consequence of continuous successful operations.

Go to (part III) chapter 10: Why Not To Tax Corporate Profits