Robert Reich posted a short and sweet piece covering the “5 Reasons Why Trump’s Corporate Tax Cut is Appallingly Dumb” this week. In it, Reich covers the age-old conservative hyperbole that the United States has the highest corporate tax rates—and as this Institute on Taxation and Economic Policy study explains, that’s a load of bullshit.
“This study is a long-term, unprecedented examination of corporation taxes paid—or not paid—by the nation’s biggest, most profitable firms,” said Matthew Gardner, an ITEP senior fellow and lead author of the report. “It reveals that many of the big corporations that are lobbying for a lower corporate tax rate to be more ‘competitive’ already pay substantially less than the 35 percent statutory rate.”
The study examines eight years of data on federal income taxes paid by Fortune 500 firms that provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates. It excludes companies that had a loss in any year between 2008 and 2015. Two-hundred and fifty-eight companies were profitable in every year of the study. Although the statutory corporate tax rate is 35 percent, collectively, these companies paid an average effective rate of 21.2 percent.
Reich’s piece covers the fact that unless we cut out a ton of programs for the poor and tax the rest of us not-rich folk more, our federal budget will probably lose at least $2 trillion over the next 10 years.
The plan would also reduce marginal tax rates on labor and substantially reduce marginal tax rates on investment. As a result, we estimate that the plan would boost long-run GDP, raise wages, and increase the equilibrium level of full-time equivalent jobs. Due to the larger economy and the broader tax base, the plan would reduce revenue by less on a dynamic basis: by $2.6 trillion over the next decade, if pass-through income is taxed as ordinary individual income, or by $3.9 trillion under the alternate assumption, where pass-through income is taxed purely at business rates.
Reich then goes on to explain the most obvious message for the Democratic Party—raising taxes historically helps the economy while cutting taxes hurts the economy. Finally Reich points out, you want to know why corporations don’t need a tax cut? They’re making almost record high profits! And finally, what really makes you think these added “profits” are going to benefit anyone but corporations?
The White House says corporations will use the extra profits they get from the tax cut to invest in more capacity and jobs. Rubbish. They’re now using a large portion of their profits to buy back their shares of stock and to buy other companies, in order to raise their stock prices. There’s no reason to suppose they’ll do any different with even more profits.
The only thing Reich gets wrong here is that this plan isn’t “appallingly dumb,” it’s “appallingly moronic.”