Home > Uncategorized > This Just In: Corporate Tax Cuts Do NOTHING for the Economy

This Just In: Corporate Tax Cuts Do NOTHING for the Economy

September 3, 2017

On Thursday, Donald Trump announced his intention to change the tax code by cutting corporate taxes and the taxes required of the wealthiest Americans on the pretext that such cuts would stimulate economic growth. Unfortunately, as two articles that appeared last week indicate, this is not true.

As Sarah Anderson wrote in a NYTimes op ed article, “It’s a Myth That Corporate Tax Cuts Mean More Jobs“, all of the evidence gathered on corporate tax cuts indicates that the laser focus on shareholders means that tax cuts translate to higher profits first, and more jobs and higher wages last. Using the claims of AT&T CEO Randall Stevenson as a case study, Ms. Anderson contrasts his firm’s actions with his verbiage:

According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes. (The company argues that it pays significant taxes, at a rate close to 34 percent in recent years, but that includes deferred taxes and state and local levies.)

Despite the enormous savings AT&T has realized, the company has been downsizing. Although it hires thousands of people a year, the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016, accounting for acquisitions and spinoffs each involving more than 2,000 workers.

The company has also spent $34 billion repurchasing its own stock since 2008, according to our institute report, a maneuver that artificially inflates the value of a company’s shares. This is money that could have gone toward research and development or hiring.

And AT&T is not an outlier. Ms. Anderson analyzed “92 publicly held American corporations that reported a profit in the United States every year from 2008 through 2015 and paid less than 20 percent of their earnings in federal income tax” and determined that they “…had a median job-growth rate over the past nine years of nearly negative 1 percent, compared with 6 percent for the private sector as a whole. Of those 92 companies, 48 got rid of a combined total of 483,000 jobs.”

Ms. Anderson concludes that there is no evidence that tax cuts do anything but increase the profit margins of corporations which, in turn, increases the compensation of the CEOs whose performance is measured by profits. Instead she suggests that taxes increase for corporations who stash money overseas and, especially, for Wall Street speculators whose profits do nothing to improve the well being of our country. She writes:

Most of us already pay a sales tax on gasoline, clothes and other basics. Why should hedge fund investors and other Wall Street traders pay no tax at all when they engage in short-term buying and selling of millions of dollars’ worth of stocks and derivatives? A fee of just a small fraction of 1 percent on each Wall Street trade would encourage longer-term investment while generating huge revenue for real job creation.

David Dayen picks up this theme in his article that appeared in Nation. Bluntly titled “Corporate Tax Cuts Don’t Create jobs, They Enrich CEOs”, Mr. Dayen draws on information from the same report to underscore the point that the GOP’s claim that tax cuts will result in “Jobs, Jobs, Jobs” is completely bogus. So, too, is the notion that US corporations are over-taxed. He writes:

Before breaking down the report, it’s important to recognize that the 35 percent US corporate tax rate doesn’t reflect what corporations actually pay. The average effective corporate tax rate in the United States, once deductions are factored in, is around 27 percent, putting it below the global average. If you limit the review to profitable corporations, the number drops to 19.4 percent. Corporate taxes as a share of GDP have fallen threefold since 1952, from 6 percent to 2 percent. Far from being overtaxed, corporations have carried an increasingly lighter burden.

Mr. Dayen focuses on GE as an exemplar of corporate welfare:

General Electric represents perhaps the most devastating example in the study. Its corporate tax rate over the sample was -3.4 percent—thanks to multiple deductions, the government was paying GE money to exist—but it still cut 14,700 jobs.

And, as Mr. Dayen notes, the US already has experience with cutting taxes and repatriation… and it failed to provide new jobs. Instead, it lined the pockets of the wealthiest in our country to the detriment of everyone else:

IPS’ findings are consistent with academic research on corporate taxes and jobs. The Federal Reserve Board of Governors saw “little evidence that corporate tax cuts boost economic activity, unless implemented during recessions.” The Economic Policy Institutecould summon no data showing corporate tax cuts moving the needle; instead, they said, it would “primarily benefit a small number of high-income capital owners.”

The one time in recent history that we gave corporations a big tax cut, the results were disastrous. In 2004, George W. Bush allowed companies with stashed offshore profits to “repatriate” them at 5.75 percent—nearly 1/6th of the normal tax rate—with the belief that the companies would subsequently use the money on business investment. In reality, a study from the National Bureau of Economic Research showed that “a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders.” Other independent analyses showed the same thing. Bush reportedly felt betrayed by corporate executives, who promised him they would create jobs with the cash.

One would hope that the former President’s betrayal would result in him speaking out against a repeat performance by his party… but it is unlikely. As Mr. Dayen writes in his concluding paragraph, the GOP and CEOs are counting on Americans falling for the same line again:

When Paul Ryan visited Boeing and again insisted that lowering corporate taxes would bring more jobs and better wages to America, (Boeing CEO) Muilenberg backed him up, saying, “You got it!” Republicans and their corporate friends are simply trying to play the country for suckers again, when the facts are clear.

Here’s hoping we are becoming awakened to the clear facts….

%d bloggers like this: