Corporate tax status is in the news lately with Apple but I just read another interesting story about the NFL. It turns out that way back in 1966 in a deal negotiated by then commissioner Pete Rozelle the NFL and sports leagues in general were declared non-profit organizations. What this means in practice is that the NFL doesn’t pay taxes. This despite the fact that the NFL earned about $10 billion in revenue last year.
If the comments on the story are to be taken as any indicator then most people are fairly upset by this state of affairs. Just as many people are upset with GE for paying no corporate taxes or by Apple avoiding paying taxes by shipping billions overseas to phony companies in Ireland.
The question I want to pursue today is the effect of the fact that the NFL doesn’t have to pay taxes. That NFL employees don’t pay taxes on hotel rooms when they come to visit your city, but I pay huge tax rates on my hotel room, on my rental car, on my airline tickets. Those are the taxes everyone is for, taxes on visitors to the city.
The result of this tax-free status is that the NFL has more money to spend on salaries. They have more money that they didn’t spend on tax lawyers. They have more money to build their league. The result is the NFL pays great salaries (which are taxable) and puts out a product that people apparently want to see. I do, I have season tickets to the Rams and gladly fork over my money every year. The result of the NFL not paying taxes is good for everyone. Now, could the NFL do things differently, do I quibble with the way they’ve run their long-term disability insurance for former players injured while playing the brutal game? Yes. But, would taxes help? To my way of thinking absolutely not.
Are corporate taxes, as they are structured today, totally counterproductive? In my opinion yes. Basically, the way it works today is that any business large enough to help Congress members get elected gets laws passed that make it relatively easy for them avoid taxes while small businesses, who can’t afford to bribe congress members, bear the brunt of the corporate tax burden. Now we begin to understand the root of the problem.
Congress passes laws not to help businesses in general but to help a particular business. Generally the one that pays for their political campaigns. When Congress passes laws that will supposedly ensure the safety of our food in reality they are passing laws making it impossible for a small cattle rancher to slaughter cows because the owner of the feed lots foots the campaign bills. When Congress passes a law to help the technical industry with overseas business they are actually passing a law that allows Apple to store huge sums of money overseas to avoid paying taxes while a company like Acumen Consulting gets stuck with the real tax bill.
These laws, passed by supposedly pro-business Congress members discourage competition and destroy business. These laws help huge companies like Pfizer and make it an unfair playing field for small companies like Jost Chemical Co.
Congress is currently in the business of deciding which company will succeed and which will fail. This is not capitalism. This is Crony Capitalism.
Detractors will argue that a business that gets to keep all its profit will simply pay the upper management even larger sums and there is that possibility. The pay structure of average employee to CEO is way out of whack but I think part of that is the unfair business model that Congress has created. When the model is biased towards large companies, and it is, then smaller, vigorous companies have a far more difficult time supplanting the behemoths. Not to say it can’t happen, it’s just more difficult. If a huge multinational company pays all its top executive outrageous sums but neglects its best workers then they will quickly lose all their talented people to smaller companies that treat their employees better.
The current system allows huge companies to pay little or no taxes while small businesses pay close to the ridiculous 35% rate. That’s one reason big companies aren’t all that eager to encourage the Obama administration to lower the corporate tax rate. Or at least those businesses that benefit from the current system. Walmart, for example, doesn’t have a huge corporate tax law division and largely pays their taxes. They want to lower the rate. GE, they like things just the way they are.
I’ve gone on a little long here but I want to sum up. The corporate tax rate as it stands today helps only the largest businesses that help fund the election cycles. It doesn’t help small businesses. It doesn’t help employees, it doesn’t help anyone. One look at the tax-exempt status of the NFL proves it. Their league is doing great and generating profit for many people; jersey sales, parking lots, hotels, construction companies (Jerry Jones spent $2 billion out of his own pocket to build a stadium), and many others. It’s a model we should at least consider. Don’t tax business profits at all. Tax salaries, capital improvement projects, purchases, whatever. At least give it a try because the current system is broken.
Sword and Sorcery fantasy with a Libertarian Twist
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Next Release: The Spear of the Hunt