Overview
The United State of America has the world most diversified and largest economy. However, this country still faces some economic challenges where at a time, the country experiences slow growth rate which holds down the rate of job creation as well as the participation in the labor market. The appropriate antidotes for this challenge is still a history and hope for many people inclusive of newly elected president Donald Tramp promising a sharp break when he settles in power. He centers his promise in one the most crucial part of the USA, and that is tax regulation. According to the current statistics; the USA records the highest level of the corporate tax in the world. This has not gone well with the country’s economy and it calls for toleration rather than celebration.
The English dictionary defines a corporate tax as a tax which the corporation pays based on the kind or some profits the said organization generates within a specified period. The company tax calculation varies based on the location of the company. The corporate tax affects the entire nation. Therefore, it is crystal clear when a calculation is made that corporate tax has a direct impact in macroeconomics. The main aim of this paper is to deeply examine the extent to which the high corporate tax in the United States of America hurts the economy and its ripple effects in the society.
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High cooperates taxes in the USA hurts its economy
According to the new statistic which was released by the Organization for the Economic Corporation and Development (OECD) in the year 2014, the United States of American ranked first with the highest amount of corporate tax in the world. The rate of corporate tax in the USA stands at 39.1 percent. This is far much high as compared with the lowest country in the same list which Ireland is with 12 percent. This is inclusive of the thirty-five percent of the federal and the average rate of the state’s total. The unpleasant part of the story is that this rate is high than the total OECD average world rating that stands at twenty-five percent. The United State of America also embraces the world tax system. In this system, there is a standard set which cannot be readjusted by any nation as asserted by Pomerleau (2014). This is a standard set for each country which they use to tax their companies which are overseas when they return their income to the country. When two are compared in the USA, it is crystal clear that this corporate tax poses a great danger to the economy of the country.
The macro economy is defined as the branch of economy which studies an aggregate behavior of all the elements of the economy in a country. These include the income, employment, domestic growth products and many others (Van Vliet, 2016). The microeconomic has it that with a long rate of income among the citizens, the output increases and hence the economy, in general, is boosted. This is one area which is hurt by the high corporate taxes in the country.
The first high corporate tax rate is a threat to business in America. This is one factor which has made many investors and business escape from the country. Currently, the United State experiences substantial corporate inversion in the worlds. Inversion, in this case, means that the business which was originally founded in the US and has been operating in the country merges with a foreign business outside the country, and the merged company moves its operation or headquarters in another country in abroad. Alternatively, some USA companies sell their right to foreign companies in other countries. The two methods which are currently common help such companies to escape from the furious US world tax system and the cooperate tax. In this sense, the income which the company generates when it operates or settle abroad cannot be subjected to high USA tax rate.
This is one major way in which the corporate tax hurts the entire USA economy. These companies may not be smiling as they resort to selling their right or merging with the foreign companies, they do this against their wish only to escape from the cruel corporate tax in the country. However, in the long run, or short run, these companies are negatively affected by their operation and change in management. This way, the high rate of the corporate tax in the country denies the country right to housing such kind of the organization. These are the companies which recruit the majority of Americans. When such companies suddenly close down or merge and shift their operation to other countries, many Americans are rendered jobless. According to the macro economic theory of economic growth, the employment is one factor which is very important in the country. Through employment, the citizen’s income increase and so does their output in the economy. The increase in the employment directly has a positive impact in the countries growth domestic products. This is a huge boost for the country. This means that as the USA increase their corporate tax, and many organizations adopt the inversion system, many citizens are rendered jobless in the country. This means that domestic growth products are increasingly reducing and the entire economy is crumbling. This has an adverse impact on the society as poverty level increase among people.
Alternatively, the united states of Americans are the most powerful country in many aspects; this is inclusive the military, research, health, economy and even birth rates. One of the strengths of the country is the competitiveness regarding the countries corporate. The team corporation competitiveness can be used when referring to the domestic competition among the companies within the same country. However, in this case, it is used to refer to the competition between the companies in the international platform. The policy which enhances the companies international market competitiveness should be the policies which enhance expert promotes companies activities such as manufacturing, tax reduction, and import reduction. The United State corporate tax system does not condone this issue hence; the country is proving to be one the most uncompetitive environment on earth.
The country’s high corporate tax rate means the home based companies have to adopt new strategies to cope with the tax system. The companies have to put in places other strategies to maximize profit from what their products after paying this expensive corporate tax. This means that these companies cannot produce well or do in well the market compare with other companies which probably pay lower corporate tax in the other countries such as Ireland (Dowling, 2014). This has made some companies dormant in the world market hence making them unattractive. Moreover, the tax system is a hindrance to the investment in the country.
The United State corporate tax system is one factor which hinders investment in the country. It hinders both the foreign based and the US based corporation since the corporate tax rate in the country is much high than the major USA trading partners in other countries. Critiques are quick to the point that it USA offers cheap and easy ways to start a business in the country through the capital recovery that seems more generous in the country than other countries, and that the USA provides more provisions which make it more easier to stare and establish a business in the country. However, the fact remains that the corporate tax is high and the country feels the pressure. Alternatively, the effect of high corporate tax has made it easy and encourage the US based multinational corporations to invest more on the overseas branches instead of the home based branches since through this strategy; it is easy to defer the outrageous USA taxes.
Inadequate investment in the country is a factor that cannot be celebrated. A country which has capability of attracting the investors both from local areas and globally is better placed economically. With adequate investors in the country, it tends to benefits in many aspects. The investors always prefer local citizens as employees in their companies. This is the only way they feel they can give thank the nation for providing them with the necessity for investments. This means that the USA has lost opportunities which could have provided the citizens with adequate employment opportunities. According to the macro economic theory, investment in a country is a package which comes with the employment rate in a country. One of the most important parts of the theory of income in macroeconomic is the theory of the investment. Investments stimulate high income through employments and income generation. This means that since the corporate tax system in the country discourages investments, the income generation through employment among the citizens is very minimal. This directly contributes to economic crumble of the entire nation.
Effects of high corporate tax in the society
The impact of the corporate tax is not only felt by the big companies in the country, but it also has ripple effects on the citizens and the society at large. First, this is a major factor which drives people into the venoms of poverty. With low income and no job to do since most of the companies have escaped from the high corporate tax, the expectation is poverty level increment in the society. Alternatively, the companies play a major role in the society regarding job creation. Without these companies, many youths resort to other activities to survive. These activities may include crime, drugs, prostitution, and others. Lastly, the society feels pressure when the economy crumbles. The high cost of living, inflation and many other economic challenges faces the society when the companies avert to foreign countries due to increased level of cooperating taxes in their motherland.
Conclusion
The United States of America is ranked by the organization for the economic corporation and development (OECD) as having the highest corporate tax in the world. The high rate of co-operating tax is not good news for the country. The taxes are impacting the country negatively and are slowly eating into the most powerful economy in the world. The high corporate tax is directly associated with the rate at which business run way from the country. Secondly, the tax is directly associated with the low competitiveness of the USA environment. Lastly, the tax rate makes the investors shy away from venturing into business in the country. The tax rate is even attributed to high economic challenges in the society as some ties its ripple effects to economic issues.
References
Dowling, G. R. (2014). The curious case of corporate tax avoidance: Is it socially irresponsible?. Journal of Business Ethics , 124 (1), 173-184.
Pomerleau, K. (2014). Corporate income tax rates around the world, 2014. Tax Foundation. Fiscal Fact , (436).
Van Vliet, J. (2016). ECON 305: Intermediate macroeconomics-theory and policy. The Journal of Economic Education , 19 (4), 264-298.
