‘A corporate tax cut will not create more jobs’Archive
US President Donald Trump’s much-awaited speech about his plans for tax reform fired up the debate about who really wins when taxes are slashed.
The president has previously proposed cutting the corporate tax rate from 35 per cent to 15pc — a move budget experts project would cost the country $2.4 trillion over a decade. The reduction, he has argued, would encourage companies to stay and grow and hire in the United States.
“There’s no reason for them to leave anymore because your taxes are going to be at the very, very low end,” Trump said last December in a visit to an Indianapolis factory.
Treasury Secretary Steven Mnuchin has also said job growth is the primary goal of tax reform. “We want to make sure that companies bring back that money onshore to reinvest in American equipment and American jobs,” he told CNBC in a June interview.
Economists have long clashed over whether tax cuts lead to jobs growth. Businesses tend to be chiefly motivated by profit, and there’s no guarantee the cash they keep from Uncle Sam would go toward hiring people on American soil. But some argue lowering the country’s corporate tax rate, among the world’s highest, would encourage companies to come here, and stay here, and so generate more employment.
The drawback is that Trump has yet to propose a specific way to pay for the tax relief, with his advisers saying the economic growth would make up for any losses
A new report from the Institute for Policy Studies, a progressive think tank in the District, comes down solidly against that argument, asserting companies that reap more tax savings aren’t more likely to expand their workforce.
Since the tax code is full of loopholes, most firms already pay less than 35pc — the average effective rate for big, profitable businesses was 22pc between 2007 and 2011, according to the Treasury Department’s latest calculations.
IPS used data from company filings — analysed by the Institute on Taxation and Economic Policy, a left-leaning research organisation — to make a list of publicly held firms that made a profit every year from 2008 to 2015 and that also paid less than 20pc of their earnings in federal corporate income tax.
Ninety-two companies fit that description, including AT&T and General Electric, according to the report. The group’s median job growth over the seven-year period was negative 1pc, the authors determined, compared with 6pc among all private firms.
The researchers also pointed out that 48 of the 92 companies got rid of jobs between 2008 and 2016, a period that includes the recession, shrinking by a combined 483,000 positions.
These firms gave their top brass bigger raises, too, the data show. The average chief executive pay among the 92 companies increased 18pc from 2008 to 2016, while S&P 500 chief executives saw a 13pc boost. (IPS looked at employment data from 2016, the latest numbers available, with 2015 ITEP analysis.)
In contrast, workers across the private sector saw a 4pc bump over that period, the authors calculated.
Sarah Anderson, the global economy project director at IPS, said she wants to see Trump focusing on closing tax loopholes, rather than reducing the corporate rate.
“How can they claim that they’re going to turn tax savings into job creation when they’ve already been getting hugely reduced tax bills and they’ve been cutting jobs?” she said.
One company Anderson highlights in the report was GE, which, according to the ITEP numbers, paid no federal income taxes between 2008 and 2015 and also reduced its workforce over that time by about 14,700.
GE spokeswoman Tara DiJulio said the report “recycles misinformation” and overlooks $6.2 billion the company paid in 2015. The smaller workforce, she added, reflected GE’s decision to sell NBCUniversal to Comcast, among other deals.
“The tax code is complex and outdated, which is exactly why tax reform must happen this year,” she said. “GE has long been advocating to simplify and modernise the tax system — even if it means we pay more in taxes.”
In response to IPS’s findings, an AT&T representative said the company pays “billions” of dollars in taxes each year and invested $135 billion back into the United States over the past five years.
Eric Todor, co-director of the nonpartisan Tax Policy Centre, said giving companies a break shouldn’t be framed as a jobs initiative. Unemployment is already sitting at a 16-year low (4.3pc). The more plausible win, Todor said, would be a raise for the workforce.
“If a corporate tax cut attracts investment, it’s going to help workers in the sense that wage growth will be somewhat bigger,” he said.
The drawback, he added, is that Trump has yet to propose a specific way to pay for the tax relief, with his advisers saying the economic growth would make up for any losses. Businesses are expected to hand over $340 billion in corporate taxes next year, or about 10pc of all revenue absorbed by the government.
The Washington Post Service
Published in Dawn, The Business and Finance Weekly, September 5th, 2017