Untaxing-III (Laffer Curve) ch 12: How Much Market Value Is Suppressed by Corporate Taxes?
A $300 billion corporate tax is not suppressing $6.57 trillion or even $10 trillion. Much more value is suppressed.
Let’s continue to use the numbers to find the exact amount that $300 billion in public company taxes is suppressing. We have a 2011 3% dividends rate. We have a 2011 35% corporate tax rate. We have a 2011 35% short term US capital gains rate. These are the facts.
The Speaker’s 12% tax suggestion appears to be arbitrary if one doesn’t calculate the full suppressive effect of his tax reduction proposal. It is clear that $0 corporate taxes releases $300 billion to the corporations to add to their dividends. When this $300 billion is declared as dividends we must divide this $300 billion by the current 2011 dividend yield of 3% to see the equity value produced.
Currently the $300 billion in US corporate taxes is collected by applying 35% to a profit base of $857.142 billion. We can reasonably assume that with a current dividend yield of less than 3%, 53% or $452.4 billion of these profits declared as dividends give the US public companies their current $17.14 trillion in market value (CIA Fact book, 2011).
If corporate and US public company profits are $857.142 billion and these profits are declared as dividends when the corporate profit tax is $0 and the dividend yield is 3%, then the total market value would be $28.57 trillion (= $857.142 billion ÷ 0.03) instead of the current, underperforming $17.14 trillion market value total.
This underperformance — directly caused by an illogical tax on public company profits — is less damaging than another corporate practice. The policy of CFOs to hoard cash is more damaging to public company market values than governments taxing corporate profits is the policy of CFO’s to hoard cash. This is an additional tax on corporate earnings, thus reducing public company market values!