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Buffet Lays Out the Realities of Corporate Taxes to Santorum

RIck Santorum might be singin the conservative free-market chorus, but Warren Buffet's changing the tone.

Warren Buffet, the so-called “Oracle of the Plains”, is one of the wealthiest men in America and has been considered a champion of American capitalism. He’s also become a political lightning-rod for liberal Democratic principals of market fairness and income equality. In August, Buffet’s open letter to a “billionaire-loving” congress was to raise taxes on the super wealthy and, in a less-covered plea, to increase the capital gains tax. Buffet has become so influential in part because Republicans, by and large, dare not challenge the man on corporate policy, and Democrats have invoked him as a champion from “behind the lines, even naming the President’s plan to raise taxes on the wealthy as the “Buffet Plan”.

This has not deterred many conservatives, and particularly those running a Republican campaign, of painting corporations as struggling under the burden of corporate taxes and federal regulations. The latest incarnation of this argument is in Santorum’s recently released economic plan, in which he seeks to cut corporate tax rates in order to “restore America’s competitiveness.” However, the talking point doesn’t really lay flush with reality. The two greatest indicators of corporate health and competitiveness show that American corporations are doing better than ever. On one hand the stock market, which can be viewed as a measure of people’s willingness to invest in corporations (amid other things) rallied over 13,000, it’s highest level since May of 2008. In addition, corporations are reporting huge profits in almost every sector of the market: energy, manufacturing, retail, and even housing is looking at a 2-year high.

Buffet addressed this misleading narrative during an interview on CNBC, saying that, “Corporate taxes are not strangling American competitiveness.” As owner of Berkshire Hathaway, one of the most profitable corporations in the country, he would know. He laid out the facts; that corporate profit as a percentage of GDP is the highest that it’s been in 50 years, just over 10%. However, corporate taxes as a percentage of GDP  (the revenue raised from corporate taxes) was only 1.2%, or $180 billion. “Just about the lowest we’ve seen,” Buffet said of corporate tax revenues.

Furthermore many Republican candidates, pundits and politicians have raised the specter of corporate flight; that should the tax rate on corporations rise, those companies may flee to other countries to do business where the tax rate is lower. True, the statutory tax rate that appears on paper is 35%, the true tax rate that most corporations pay after deductions, if anything at all, is around 12%. This rate, the real rate, is the second lowest corporate tax rate in the developed world. In other words, any country that a corporation would have any chance of doing as much business as they do in the U.S. would collect much more in tax revenue from them.