Nobody likes to pay taxes, but nobody wants to do without the services and protections that taxes provide. Taxes make it possible to share the costs of essential investments and services that no individual or business could make alone. Taxation in a democracy lets us all have a say in how our taxes are collected and spent.
Taxes pay for the essential assets of a modern economy. These include physical infrastructure assets such as roads, bridges, airports, and pipelines; institutional assets such as efficient, transparent marketplaces, courts, and regulatory bodies that keep our food, medicine and water safe; social assets such as educated workers with in-demand skills; and intellectual assets such as state-of-the-art university programs that turn out graduates capable of world-class R&D.
Tax policy can be subverted, and not all entities deserve the tax support they enjoy. Tax policy gets hijacked by industries and firms that have become dominant in their industries and can afford to buy favorable tax treatment with their political donations. These industries and firms can thus preserve their control of the marketplace even if they are no longer competitive on their own merits. Tax preferences for oil and gas depletion, and for row crops exemplify this abuse.
Tax credits also tend to reward big companies over small, even though most of the innovation and job growth in America comes from smaller companies. The tax structure rewards bigness because only large companies can afford the many accountants and lawyers needed to work the loopholes. Mostly large companies operate in multiple countries and can exploit the arbitrage opportunity created by different tax rates. All of these factors give large companies unearned advantage in competing with smaller and more nimble and innovative businesses; this advantage impedes economic growth, discourages innovation, and slows the essential forces of creative destruction.
One of the tax loopholes that gives big corporations an unearned advantage over small ones involves the practice of corporate inversion, a process by which a U.S. business acquires a foreign company, and then officially moves their headquarters overseas to the address of the acquired company. Operations typically continue in the U.S. as before, and the company continues to benefit from the U.S. rule of law, U.S. infrastructure, and the U.S. work force. But now the company is no longer an "American" company and dodges a substantial proportion of U.S. tax rates.
Every industry goes through a natural lifecycle, and often, important new industries do need some protection at the outset. All of America’s important transportation technologies received favorable treatment, tax or otherwise, in their infancy. Preferences for important emerging industries have been, on balance, a good thing for the U.S. But as industries mature it is crucial that we withdraw the preferences and make them compete on their own merits.
ASBC works to increase tax equity for small businesses, reduce tax haven abuse by multinational firms, and eliminate tax havens for mature industries. We encourage policymakers to consider economic, environmental, and social impacts when crafting tax policies. Such policies should help to fund infrastructure improvement, research and development, education, public services, and business innovation. America’s taxes should invest in the future, not subsidize the past.