By slashing the returns to capital, the tax discourages companies from investing in plants, equipment and technology. But it's those kinds of outlays that make workers and managers more productive. Higher productivity fosters higher wages by making each employee more valuable.
Less investment means lower wages in the long run. That helps explain why liberal economists don't like the corporate income tax any more than conservative ones do.
This levy is also not very good at its only legitimate purpose -- raising revenue. Despite having a high rate -- or because of it -- we rank near the bottom in the amount of money collected.
One culprit is the long list of loopholes that let a lot of income escape the clutches of the IRS. Another reason is that if you're a multinational company, you will pay lawyers and accountants handsome sums to find ways to move your income to low-tax places and your expenses to high-tax places.
Martin Sullivan, a former economist at the Treasury Department and Congress' Joint Committee on Taxation, says this happens all the time. In five low-tax countries whose economies account for only 2 percent of world GDP (excluding the U.S.), U.S. multinationals reap 21 percent of their foreign profits.
This oddity, Sullivan testified recently before the House Ways and Means Committee, is the direct result of "perfectly legal but economically indefensible assignment of profits to subsidiaries in low-tax jurisdictions." The problem has only gotten worse as rates have come down abroad but not here.
The left of his party may demand to know if Obama wants to accommodate big business or stand up for the interests of workers. But who says we can't do both?
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