Unlike water, which travels the path of least resistance, businesses will generally do whatever it is they can to increase their bottom lines, such as cutting costs by every means possible to increase their profit margins.
They can achieve this in many ways: By reducing payrolls and employee benefits, outsourcing to low-wage "right-to-work" states within the US (where labor unions were busted by GOP state legislators), or by offshoring to low-wage countries who have the least regulatory and labor laws (as well as the lowest tax rates) --- and/or by making full-time employees part-time, and/or by robotizing and animation.
They can (and usually do) increase their workers' productivity, sometimes by laying off a few employees while requiring the remaining ones to pick up the extra work load. (Although sometimes, employers might be required to pay red circle wages to some employees --- such as those in a labor union, who are covered by a bargaining agreement and must be paid for the extra work if it's not defined in their job descriptions.)
Larger corporations, because they have the financial resources, will also lobby Congress for preferential changes in the tax code to lessen their tax obligations, by giving money to political candidates who will pass tax and regulatory laws that best favor their businesses and executive officers.
These same corporations also have the resources to hire an army of tax attorneys to avoid the corporate taxes that are already mandatory in the current tax code; and they can also hire lawyers to resist and beat back any legislation that's pro-labor, consumer-orientated, regulatory, safety-related and pro-environmental (and the newly proposed TPP trade agreement gives corporations even more power over us and our democracies).
Whereas, small businesses and individuals, who lack the resources, are subjected to different laws, not laws that the larger corporations have manipulated on their own behalf through members of Congress --- those who donated hundreds of thousands (if not millions) of dollars to their political campaigns and SuperPACs (using Democracy as tit-for-tat politics).
But no matter how strict (or lax) the labor, regulatory or environmental laws are, or how high (or low) their corporate and capital gains tax rates are, these same corporations (via their CEOs and board of directors) will ALWAYS do whatever they can to increase their bottom lines and make a profit --- whether their profit margin is only 1% or over 100% --- that's just how it is --- that's just the nature of the corporate beast. Just like with greed or an insatiable thirst, they'll always obsess for more --- sometimes only to wastefully hoard their excess gains (such as the $2 trillion they hold in offshore bank accounts).
If you raised the tax rates on corporations and their CEOs today (to the same levels as they were in the 1950's, when these very same corporations were growing and prospering), it most likely wouldn't bankrupt a single major corporation today. The only difference being: the CEOs (as stockholders) would just be making a little less money via their stock-option grants.
Bruce Bartlett at the New York Times points out that when the federal income tax was first established 100 years ago in 1913, the new tax applied only to those with very high incomes. These days the ultra-rich use the tax code and cuts in government spending as a weapon against the poor in their class-war on the least fortunate among us...such as their own low-paid employees.
In the 1913 tax code, there was a personal exemption of $3,000 for individuals (equivalent to $71,000 today) and $4,000 for married couples (about $94,500 today). Additionally, all interest and state and local taxes were deductible. After that, the following rate schedule (chart below) applied to both individuals and couples.
But these days, the rich have been whining about their low-wage workers, the unemployed and the poor, saying "they all should put more skin in the game" --- especially when, according to the latest data from Social Security, 50% of all wage earners in the US only takes home $27,000 a year or less (hardly enough to live on). Meanwhile, the top 1% are still buying private islands with mansions. Do they really have any valid reasons to complain?
It was estimated back in 1913 that only 425,000 people in a population of more than 97 million would owe any income tax. (100 years later, we have 65,505 Americans who have a combined net worth of more than $9 trillion in a population of 315 million).
But even before the income tax was first enacted, the issue of loopholes came up, as mentioned in this article in The New York Times on April 13, 1913. By 1915, one congressman had complained: “I write a law. You drill a hole in it. I plug the hole. You drill a hole in my plug” --- (Just like it is now a century later in 2013, and why the tax code is almost 75,000 pages today) --- so the original 1913 income tax did not remain unchanged for very long.
The next year, World War I broke out in Europe and three years later when the United States entered the war in 1917, it led to a huge increase in income taxes. By 1918, the personal exemption was reduced from $3,000 to $1,000 ($15,500 today), the bottom tax rate rose from 1 percent to 6 percent on taxable incomes up to $4,000 ($62,000 today), and the top tax rate was 77 percent on incomes above $1 million ($15.5 million today).
This was also when an "excess profits tax" was initiated. The tax was imposed on businesses on the difference between the amount of profit that a company generally earns during peacetime and the profits earned during times of war. These taxes were also intended to prevent "astute" businessmen from reaping inordinate profits from increased wartime governmental and consumer spending. Excess profits taxes were levied during both World Wars, as well as the Korean War (No additional taxes were ever collected to fund the wars in the Middle East --- just the opposite --- George W. Bush lowered all taxes.)
The excess profits tax was not popular with "free-enterprise" war profiteers, who felt that it discouraged necessary wartime productivity with its removal of the profit motive (evidently, corporate patriotism was not enough of a motive).
- The first effective national excess profits tax was enacted in 1917, with rates graduated from 20 to 60 percent on the profits of all businesses in excess of prewar earnings --- but not less than 7 percent.
- In 1918 a national law limited the tax to corporations and increased the rates. Concurrent with this 1918 tax, the federal government imposed (for the year 1918 only) an alternative tax, ranging up to 80 percent, with the taxpayer paying whichever was higher.
- In 1921 the excess profits tax was repealed despite powerful attempts to make it permanent. In 1933 and 1935 Congress enacted two mild excess profits taxes as supplements to a tax on stocks --- much like the 1921 preferential capital gains tax, which was only 12.5% back then.
Although marginal tax rates on an individuals' income were sharply reduced by Republican presidents and Congresses during the Roaring Twenties precipitating the Great Depression (just as the Bush tax cuts had precipitated the Great Recession), the marginal tax rates never got back to where they were before World War I. At its low point, the top rate fell only to 24%, more than three times than the pre-war rate.
It is important to remember that until World War II, the income tax was paid only by a very small number of people – fewer than four million people in a population of more than 130 million in 1939. By 1943, however, the number of taxpayers had increased more than 10-fold (more people were "putting more skin in the game").
By the 1950s (during the Eisenhower years) incomes in the top bracket faced a marginal tax rate of 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that as of circa 1960 (just prior to when our space program would be gearing up to put a man on the moon), the top 0.01 percent of Americans paid an effective federal tax rate of more than 70% --- almost twice what they pay today with the top marginal rate of 39.6% on regular wages, and a hell-of-a-lot more then than the CEOs pay now with a current capital gains tax rate of only 23.8%.
Some have noted that tax rates are way lower today than in the 1950s, yet tax revenue as a share of the economy is just as high. But they don't say anything at all about the workers taking part and benefiting from any increases in the GDP "as a share of the economy" for the past 30 years or longer (as a matter of fact, it's been just the opposite).
Federal spending as a percent of Gross Domestic Product (GDP) dropped significantly after World War II, as did the level of debt as a percent of GDP. Looking forward 40 years, on our current path, we will have very opposite numbers as debt and spending continue to rise precipitously. Back in 1945, for example, Social Security was paid for by 42 times as many workers as retirees who utilized it. Today? That ratio is about 2.9 to 1, and getting worse. Meanwhile Medicare, which did not exist in 1945, is expected to grow from 3.6% of GDP to 5.5% of GDP between 2011 and 2035.
While all that may be true, they don't say anything at all about:
- a significantly rising population
- an aging work force
- the cap on Social Security payroll taxes
- reduced or stagnate wages since the 1970s (meaning less can be contributed to the Social Security trust fund by workers who earn $113,700 or less with a 30-year-low in the labor force participation rate because of all the jobs being offshored)
- the fact that no Social Security taxes are paid by the top 1% on incomes over $113,700
- or that the top 1% pays no Social Security taxes at all on their capital gains
- and that Social Security and Medicare has nothing at all to do with federal income taxes being paid as a proportion to GDP, especially if wages have stagnant, or worse, in decline.
In reality, the 1950s was an extremely prosperous decade for America. In fact, it was a prosperous decade for the great majority of Americans (rich and poor alike) --- in contrast to the past three decades, which have seen only the top 1%. From Beggars Can Be Choosers:
In the 1950s American workers made the highest wages in the world. We also enjoyed the best workers' benefits and the longest vacations. Most high-tech products were made in America. American had a trade SURPLUS in the 1950s. The dollar was strong. The U.S. middle class was the envy of the world. The U.S. made the best cars in the world. America's manufacturing base and infrastructure were second to none. U.S. public schools trounced their counterparts worldwide. Nations around the world regularly sent representatives here to study how we did it. The 1950s was the decade that America became a superpower. And all of this with a high-end 91 percent income tax rate. I find it interesting how they [the Republicans and Tea Party] ignore the wisdom of Eisenhower, a true American hero who won World War II for America and then presided over the booming prosperous 1950s (when the national highway system was built. Today we can't even maintain the roads and bridges we have.) One wonders what Eisenhower would have made of today's GOP. I'd suspect he would be sickened by today's Republicans, who want to roll back the New Deal. In fact, Eisenhower called those who would abolish Social Security "stupid."
"Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt* (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid." --- President Dwight D. Eisenhower, 1954
For individual taxes on the ultra-rich (the top 1%) a 91% tax rate is much too high, and 23.8% (on their capital gains) is much too low. Even Obama's proposed Buffett Rule (at 30%) is still too low, because it's still less than the top marginal tax rate of 39.6% on regular wages. That's why a 39.6% tax on capital gains for the top 1% is just about right. After all, why should a neurosurgeon or Warren Buffett's secretary pay a higher tax rate than Warren Buffett or a hospital's CEO? And why not tax capital gains 100% for Social Security taxes?
As for corporate taxes (the tax on profits which generates a CEO's capital gains), 35% is also just right, because it would be lower than what the CEOs would pay on their personal income (if they were taxed 39.6% on the capital gains that they earned from their stock-option grants).
But because of all the loopholes currently in the tax code, too many corporations pay a much lower "effective" corporate tax rate. This should be changed to a "flat tax" of 35% on all gross profits (the GOP loves a flat tax). And if a corporation would rather not pay corporate taxes, they can always un-incorporate (and forgo all the other benefits and advantages that the government allows them), and so therefore, these corporations can pay the same taxes as does a small business, the self-employed, or an independent contractor --- or that of an individual, with the current top marginal rate of 39.6%.
Simply put, by taxing those who benefited the most by paying sub-standard wages for the past 30 or 40 years, they could at least help pay for the employment of people to repair our crumbling infrastructure, help pay for programs like food stamps for those who had their jobs offshored (forcing many into low-paying jobs), and help prop up the Social Security trust fund for those who became disabled or too old to work after working all their lives to enrich the top 1%.
Don't worry, the CEOs will still do what whatever it is they can to increase their bottom lines and make a profit --- whether their profit margin is only 1% or over 100%. If not, they can always steal their employees' pensions, file for bankruptcy, ask for a government bailout, receive a multi-million-dollar golden parachute, and let the taxpayers pick up the tab for them again --- just like they always have.