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Web letter by Eric Beebe: Higher corporate tax exposes unintended consequences

A recent online letter by Hank Achor (“New corporate tax is the answer to restore the economy,” Aug. 7) calls for higher taxes on corporations based on the unique theory that “Ireland, Iceland and Cypress (sic) all are now debt ridden basket cases because of their low corporate tax.”

International experts do not share the gentleman’s conclusion. The European Union, European Central Bank and International Monetary Fund all reasoned that Ireland, Iceland and Cyprus became “debt ridden basket cases” because of banking decisions that are unrelated to corporate tax rates. The Geary Institute at the University College of Dublin wrote that the Irish economic problems were “almost entirely related to property speculation and to the unchecked housing speculation bubble of the preceding ten years.” In Iceland the cause of the problem was described by the International Monetary Fund’s Poul Thomsen as an unregulated environment that allowed an oversized banking system to develop. Reuters’ analysis concludes that “Cyprus’ troubles stem from exposure to Greece and the huge losses two of its largest banks, Bank of Cyprus and Marfin Popular, had to stomach when euro zone leaders agreed to write down the value of private sector holding of Greek government bonds.”

If there is a link between corporate tax rates and the economy, Achor should look at Detroit and the study done by Cato Institute’s Chris Hall. He compares Detroit’s tax rates to the average tax rates of 50 other major cities. The Detroit levy on industrial property (3 percent) is nearly double the 1.6 percent average of other cities, and the Detroit levy on commercial property (4.1 percent) is more than double the 50 cities’ average of 1.9 percent. The result of those high corporate taxes is evident.

Achor also proposes a corporate tax code that will “punish those who don’t (do what we need).” It is curious logic that concludes that tax policies written to “punish” productive institutions will somehow lead to prosperity.

Achor’s policy of higher corporate taxes was recently adopted by the state of Illinois with an unpredicted result. Ameren Corp.’s tax bill grew by $41 million, and the corporation responded by adopting an annual $40 increase for each of its 1 million customers.

Those who irresponsibly editorialize for higher corporate tax rates should contemplate “The Ameren Axiom”: Corporations don’t pay taxes; people pay taxes.

ERIC BEEBE

Fort Wayne

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