Obamacare architect Jonathan Gruber is now famous for saying that ObamaCare would never have passed were it not for the stupidity of American voters. He said that supporters of the bill could not admit that the bill taxed medical insurance premiums because taxpayers would have understood that would lead to higher cost medical insurance. Similarly, supporters could not say they were increasing taxes on prescription drugs and medical devices. Voters would not support the idea of increasing the cost of something they already thought was too expensive. So, Obamacare supporters said they were taxing insurance companies, drug companies and medical device manufacturers.

Gruber publicly stated the obvious. Politicians find it easier to convince voters to go along with a tax when the voters believe that they personally won’t be the taxpayers.

A harsh reality of hidden taxes is that voters who don’t know who pays a tax have no idea of what the economic impact of the tax is. Hidden taxes have hidden consequences. And that brings us to the corporate income tax.

Politicians talk about a tax on "big business." Economists disagree over the answer to the fundamental question of who bears the burden of the corporate income tax. One thing the economists do know and that is it isn’t corporations. Some of the burden may fall on workers in the form of fewer jobs and lower wages. Some perhaps falls on consumers in the form of higher prices and fewer goods and services. Some likely falls on investors in the form of lower investment returns. Because the incidence of the corporate income tax is foggy, it passes the Gruber test. Voters don’t know who pays the tax. It is called the corporate income tax, so voters don’t think they pay it, and it is safe for politicians to favor a high corporate income tax. Never mind that our corporate tax rate is already the highest in the world, and that this is causing, as we will see, extraordinary economic distortions.

A harsher reality it that companies are increasingly using foreign subsidiaries to shelter corporate income in an effort to avoid the highest corporate tax rate in the world. In general, a foreign subsidiary’s income is taxed to the U.S. parent only if the income is repatriated in the form of dividends. It is estimated that over $2 trillion of corporate income is held by foreign subsidiaries. Distributing the earnings to the parent’s shareholders would generally first require the parent to receive a taxable dividend from the subsidiary. The income remaining after the parent’s tax is paid can then be distributed to the parent’s shareholders where it is taxed again.

American corporations used to distribute most of their income to shareholders in the form of dividends. This S&P 500 graph shows that dividends, which for decades averaged 4 to 5 percent of stock values, have been around 2 percent for several years. In order to pay dividends at historical levels, many U.S. corporations would have to pull taxable dividends through from their foreign subsidiaries. Today’s view is, why pay large dividends? Instead of paying dividends, corporations are now using the earnings they retain to expand. As a result, corporate profits are now at record levels. The Federal Reserve Economic Data Report shows that corporate profits are now running at 10 percent of GNP up from historical averages of 5 to 6 percent. Think of it like this: if you withdraw most of the interest from an interest-earning account, neither the balance in the account nor the annual interest earned increase appreciably. If you leave the money in the account, both, over time, increase exponentially. That is what is happening now with stocks. Corporate earnings and stock values are both increasing because funds are retained and reinvested rather than being distributed to shareholders. Given current interest rates, who wants to invest in interest-earning alternatives? Is this the next price bubble? If you aren’t worried about this, you aren’t paying attention. Decades of federal regulations pressured banks to approve high-risk residential real-estate loans. The real estate market collapsed in 2008.

And now the harshest reality of all. Because of our high taxes, most of that expansion has been abroad. A Treasury Department Study by Harry Grubert indicates that in 2004, a little over one-half of income reported for tax purposes by large U.S corporations was earned by foreign subsidiaries. At that time, the percentage was growing rapidly. One can only guess what that percentage is now, a decade later.

Some might say that these numbers reflect little more than skillful tax planning by large corporations. Surely some of it is. Every tax system is replete with tax avoidance efforts. But it is more than that. Today we have a global economy. Products are designed here, manufactured elsewhere -- often Asia -- and sold worldwide. You tell me how much money companies make here. The real world answer is, however much they choose to report. Why would any corporation decide to report income here and have it subjected to the world’s highest corporate tax rates? Reinvesting earnings abroad means that companies can avoid regulation, pay lower wages, and lower taxes.

This is far from the end of it. American investors form new companies abroad in order to attract international investors. Foreign businesses operate in a much more tax-friendly environment than their U.S. competitors. Why start an international business in the unfriendly U.S. tax environment?

The United States was the dominant economic power for decades. Regulation and taxes are changing this. So, now we are now exporting not just profits but also corporations. Burger King recently announced its plans to avoid U.S. taxes by merging with a Canadian company. Some said the company should be patriotic and pay U.S. taxes. What most people don’t know is that Burger King is controlled by Brazilian investors. Brazilians may be patriotic, but that doesn’t translate into their wanting to pay the high U.S. corporate tax rate. Does your patriotism motivate you to want to pay Brazilian taxes? Dozens of major companies are fleeing our tax tentacles. No one has ever told me why we tax U.S. companies more heavily -- in some cases, much more heavily -- than foreign competitors. If it is a U.S. company (often only meaning its headquarters are here) it is taxed on its worldwide income, but if it is a foreign company (meaning its headquarters are elsewhere) it is taxed only on its U.S. profits. Don’t we want the headquarters of businesses to be here?

Just how bad are the economic distortions caused by the current corporate tax structure? President Obama -- yes, President Obama -- has proposed reducing the top corporate tax rate from 35 percent to 28 percent. That is a start. A Republican-controlled Congress can address this issue before the stock bubble bursts.

Fear that this could actually happen is causing the most liberal member of Congress to push back. Senator Bernie Sanders recently pointed out that in 1952 the corporate income tax produced 33 percent of federal tax revenues, but that the corporate income tax now brings in under 9 percent of revenues. This statement has been widely reported. Most of my liberal friends have posted Senator Sanders’ quote on Facebook. These numbers ignore the fact that income is being driven offshore by high taxes. From what I can tell, no one has pointed out a more important reason behind this percentage decrease. It is very simple. The 1952 numbers were distorted by the then tax law. In 1952, the top individual tax rate was 40% higher than the top corporate rate. The wealthy sheltered their income by moving it into family-owned corporations. In other words, the wealthy put their income into corporations because corporations were tax shelters. Who would intentionally choose to pay a 40 percent higher tax rate? So it looked like businesses (as opposed to individuals) were paying the tax. This is another example of how the tax system distorts economic activity.

The coming Republican takeover of both chambers of Congress should prove interesting.

Dale Bandy received his Ph.D. in business from the University of Texas at Austin. He has taught at four universities, published ten books and dozens of articles. Six of his previous articles have appeared in he American Thinker.