‘Will low­er­ing the cor­po­rate tax rate jump-start the econ­omy?’ NO YES

Cecil Whig - - OPINION - Tri­bune News Ser­vice By MATTHEW R. SHAY Tri­bune News Ser­vice

The mar­ginal tax rate on cor­po­rate prof­its in the United States is 35 per­cent. As Pres­i­dent Don­ald Trump and other pro­po­nents of tax re­form con­tin­u­ally say, this is the high­est rate in the world. This is true — but also in­cred­i­bly mis­lead­ing.

Due to loop­holes, the ac­tual tax rate on cor­po­rate prof­its is close to 20 per­cent, putting the U. S. right around the mid­dle among wealthy coun­tries.

This num­bers- ver­sus- re­al­ity gap should be kept front- and- cen­ter in the de­bate over re­form­ing the cor­po­rate in­come tax. If some­one ar­gues that U. S. cor­po­ra­tions pay too much in taxes, they are not be­ing hon­est.

Cor­po­ra­tions in coun­tries like Ger­many and the Nether­lands pay a com­pa­ra­ble share of their prof­its in taxes. High taxes are not putting our firms at a com­pet­i­tive dis­ad­van­tage.

Fur­ther­more, as a mat­ter of sim­ple arith­metic, if our cor­po­ra­tions pay less in taxes, the rest of us will have to pay more.

Yes, Repub­li­cans prom­ise us tax cuts will lead to a surge of in­vest­ment and growth, but we’ve heard this one be­fore. It didn’t hap­pen when we had big tax cuts un­der Ron­ald Rea­gan and it didn’t hap­pen when we had big tax cuts un­der Ge­orge W. Bush.

In both cases, the deficit surged. If there was any pos­i­tive im­pact on growth, it was too small to no­tice and cer­tainly not enough to off­set the im­pact of the tax cut.

The les­son from th­ese prior ex­per­i­ments is that tax cuts lead to less rev­enue, which means larger deficits. Many of the same peo­ple now push­ing for tax cuts will start scream­ing about large deficits when we see a fall in rev­enue.

This leaves two op­tions: cut­ting spend­ing or rais­ing taxes on the rest of us. Nei­ther of th­ese prospects looks good for peo­ple who don’t own lots of stock in cor­po­rate Amer­ica.

Cut­ting waste is al­ways pop­u­lar, but the re­al­ity is that there is not much waste sit­ting there wait­ing to be cut. The spend­ing that will be slashed is for ar­eas like So­cial Se­cu­rity, Medi­care and Med­i­caid, pro­grams that have al­ready shown up on the Repub­li­can hit list.

There is an al­ter­na­tive route that is more worker- friendly. Cor­po­ra­tions are able to re­duce their tax rate from the leg­is­lated 35 per­cent rate to the ac­tual rate of 20 per­cent through a wide va­ri­ety of tax avoid­ance mea­sures. Many peo­ple also get ver y rich from de­vel­op­ing tax avoid­ance strate­gies, in­clud­ing many in the pri­vate eq­uity in­dus­try.

Th­ese tax avoid­ance strate­gies are a com­plete waste from an eco­nomic stand­point. We want peo­ple to make money by de­vel­op­ing bet­ter prod­ucts and ser­vices, not from de­vis­ing cre­ative ways to beat the IRS.

If we had a tax re­form that raised roughly the same amount of rev­enue but largely elim­i­nated the op­por­tu­ni­ties for tax avoid­ance, this would be a clear win­ner for Amer­i­can work­ers. In this case, more re­sources would be de­voted to pro­duc­tive in­vest­ment rather than gam­ing the tax code.

It is pos­si­ble to de­sign a tax re­form along th­ese lines. My fa­vorite route would be to re­quire com­pa­nies to turn over non- vot­ing shares in an amount equal to their tax li­a­bil­ity. Th­ese shares would give the gov­ern­ment no con­trol over the com­pany and would be treated just like reg­u­lar shares.

If the com­pany pays a $ 2 per share div­i­dend, the gov­ern­ment gets $ 2 on each its shares. If the com­pany buys back 10 per­cent of its stock at $ 100 per share, it pays $ 100 for each share of gov­ern­ment stock. This way, there is no way the com­pany can cheat the gov­ern­ment with­out also cheat­ing its share­hold­ers.

This sort of re­form would be a good for the econ­omy and good for the na­tion’s work­ers. For this rea­son, un­for­tu­nately, it prob­a­bly will not go ver y far in Wash­ing­ton.

Dean Baker is a co- di­rec­tor of the Cen­ter for Eco­nomic and Pol­icy Re­search in Wash­ing­ton, D. C. Read­ers may write him at CEPR, 1611 Con­necti­cut Ave. NW, suite 400, Wash­ing­ton, D. C., 20009

La­bor Day is be­hind us. And as we look be­yond its tra­di­tions of bar­be­cues, beaches and vague po­lit­i­cal prom­ises to help Amer­i­can work­ers, we can clearly see one con­crete ac­tion Congress could take to ac­tu­ally in­crease wages and cre­ate jobs: cor­po­rate tax re­form.

Those op­posed to this idea fail to rec­og­nize how work­ers stand to ben­e­fit.

They should know it’s real peo­ple who ul­ti­mately pay for Amer­ica’s high cor­po­rate tax rate. This in­cludes con­sumers and share­hold­ers, but just as im­por­tantly, work­ers, who re­ceive lower wages as re­sult of high cor­po­rate taxes.

The av­er­age an­nual wages of em­ploy­ees at C cor­po­ra­tions — most ma­jor com­pa­nies fit into this cat­e­gory — are as much as $4,690 lower be­cause of the high cor­po­rate tax rate, ac­cord­ing to an anal­y­sis by econ­o­mists at the Na­tional Re­tail Fed­er­a­tion.

That’s a stun­ning num­ber, more than the av­er­age Amer­i­can worker’s monthly wage. And it’s backed up by a wealth of other ev­i­dence, as gov­ern­ment and aca­demic econ­o­mists agree la­bor bears be­tween 25 per­cent and 75 per­cent of the cor­po­rate tax bur­den.

If you ap­ply those num­bers to 2016’s cor­po­rate taxes, it means that Amer­i­can work­ers col­lec­tively lost be­tween $75 bil­lion and $225 bil­lion in wages.

Even the low end of that es­ti­mate is far too much. That’s why tax re­form is crit­i­cal to cre­at­ing new jobs and de­liv­er­ing sub­stan­tial ben­e­fits to work­ers.

Given la­bor’s share of the cor­po­rate tax bur­den, re­duc­ing the tax rate to 20 per­cent would raise wages by be­tween $32 bil­lion and $97 bil­lion — enough to sup­port be­tween 500,000 and 1.5 mil­lion new pri­vate­sec­tor jobs.

Re­form is a key con­cern for the re­tail in­dus­try, which holds a unique po­si­tion re­gard­ing both work­ers and the cor­po­rate tax rate.

Re­tail is the na­tion’s largest pri­vate-sec­tor em­ployer, di­rectly em­ploy­ing 13 mil­lion Amer­i­cans and sup­port­ing 42 mil­lion jobs over­all. The in­dus­try is also among those pay­ing the high­est taxes, with an av­er­age ef­fec­tive tax rate of 36.4 per­cent when both fed­eral and state taxes are in­cluded. Re­tail busi­nesses see first­hand how high cor­po­rate tax rates im­pact wages and jobs.

Yet many still ar­gue that cor­po­rate tax re­form would not ben­e­fit work­ers.

Ex­am­in­ing an un­rep­re­sen­ta­tive sam­ple of the roughly 1.6 mil­lion C cor­po­ra­tions in the United States, a re­port by the In­sti­tute for Pol­icy Stud­ies looked at 92 com­pa­nies that paid an ef­fec­tive tax rate lower than 20 per­cent and found that more than half had cut jobs be­tween 2008 and 2015.

Based on this small, hand-picked sam­ple and flawed method­ol­ogy, the re­port du­bi­ously as­serts that cor­po­rate tax cuts would yield the same dis­ap­point­ing re­sults.

There are sev­eral prob­lems with the in­sti­tute’s anal­y­sis.

First, it only ex­am­ines a few dozen busi­nesses that are “low ef­fec­tive rate tax­pay­ers,” ig­nor­ing those in in­dus­tries like re­tail that pay close to the statu­tory tax rate.

Sec­ond, the re­port does not di­rectly con­nect tax bur­den to jobs, only look­ing at over­all em­ploy­ment change dur­ing the pe­riod stud­ied. The re­port also does not fac­tor in changes in tax rates, ac­tual do­mes­tic tax rates, the econ­omy or any fac­tors that af­fect hir­ing.

There are cer­tainly valid con­cerns about how some firms might re­spond to tax re­form, but the over­all picture is clear.

An em­ployee of an Amer­i­can cor­po­ra­tion cur­rently for­feits thou­sands of dol­lars each year be­cause of the high cor­po­rate tax rate.

Tax re­form would put money back in their pock­ets and help cre­ate hun­dreds of thou­sands of new jobs — an ef­fect that would be am­pli­fied by a sim­i­lar tax cut for non-cor­po­rate busi­nesses.

Long-over­due cor­po­rate tax re­form would mean real change that would last for decades. Even with a busy fall sched­ule, law­mak­ers must seize this rare op­por­tu­nity to push for a tax sys­tem that would in­crease wages, drive job cre­ation and pro­vide mean­ing­ful changes for the av­er­age Amer­i­can.

Matthew R. Shay is the pres­i­dent and CEO of the Na­tional Re­tail Fed­er­a­tion, the world’s largest re­tail trade as­so­ci­a­tion, whose mem­bers em­ploy 42 mil­lion Amer­i­cans. Read­ers may write him at NRT, 1101 New York Ave. NW, Wash­ing­ton, D.C., 20005.

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