Doubts arise whether cor­po­rate tax cut would boost growth

Daily Freeman (Kingston, NY) - - BUSINESS - By Josh Boak

WASHINGTON » For Pres­i­dent Don­ald Trump, what’s good for Gen­eral Mo­tors is great for Amer­i­can work­ers. Same for Boe­ing. And AT&T. Not to men­tion small busi­nesses.

Trump in­sists that slash­ing the cor­po­rate tax rate from 35 per­cent to as low as 15 per­cent would free up valu­able cash. Com­pa­nies would use the money to boost in­vest­ment, in­crease em­ploy­ees’ pay, ac­cel­er­ate hir­ing and speed eco­nomic growth. What’s more, cor­po­ra­tions that now keep tril­lions over­seas to avoid U.S. taxes would bring the money home. Amer­i­can com­pa­nies could bet­ter com­pete with ri­vals based in coun­tries with lower tax rates.

“We’re go­ing to have mag­nif­i­cent growth,” Trump de­clared aboard Air Force One on Thurs­day. “We’re go­ing to go like a rocket ship.”

Would we? Many econ­o­mists, tax ex­perts and even some busi­ness own­ers say it’s un­likely. Rather than hire, com­pa­nies might use much of their tax sav­ings to buy back their stock or in­crease their dividends to in­vestors. Many com­pa­nies, they note, have al­ready been able to bor­row at his­tor­i­cally low rates to ex­pand their busi­nesses yet have cho­sen not to.

“The main­stream eco­nomic ev­i­dence is that the bulk of cor­po­rate tax cuts go ex­actly to whom you would ex­pect — which is wealthy in­vestors and ex­ec­u­tives,” said Chye-Ching Huang, deputy di­rec­tor of fed­eral tax pol­icy at the left-lean­ing Cen­ter on Bud­get and Pol­icy Pri­or­i­ties.

Many econ­o­mists fore­see some ben­e­fits from over­haul­ing and sim­pli­fy­ing the cor­po­rate tax code, just not the ex­treme growth Trump is promis­ing.

One rea­son cor­po­rate tax cuts might pro­vide lit­tle over­all ben­e­fit is the rel­a­tive health of to­day’s econ­omy. Un­em­ploy­ment is al­ready un­usu­ally low at 4.4 per­cent. The econ­omy is in the ninth year of a slow but steady ex­pan­sion, rather than in a down­turn in which tax cuts might de­liver a ma­jor boost.

In a 2014 pa­per, two econ­o­mists — Alexan­der Ljungqvist of New York Univer­sity and Michael Smolyan­sky of the Fed­eral Re­serve — con­cluded that state cor­po­rate tax cuts did lit­tle to strengthen eco­nomic ac­tiv­ity un­less the cuts were made dur­ing a re­ces­sion. (The flip side is that they found cor­po­rate tax in­creases to be “uni­formly harm­ful.”)

Nor have pre­vi­ous ef­forts to re­duce cor­po­rate taxes gen­er­ally de­liv­ered as ad­ver­tised. Kansas, for ex­am­ple, ex­empted hun­dreds of thou­sands of busi­nesses from cor­po­rate taxes and cut in­di­vid­ual rates in 2012, only to face a rev­enue squeeze as the in­tended eco­nomic growth never ma­te­ri­al­ized.

The fed­eral gov­ern­ment pro­vided a tax “hol­i­day” on over­seas prof­its in 2004 to bring money back into the United States at a dis­count to the 35 per­cent rate. But the Obama administration ob­served later that the move had di­min­ished tax rev­enue and un­in­ten­tion­ally led com­pa­nies to hoard cash abroad in hopes of re­ceiv­ing that dis­count.

There is also con­cern that a cor­po­rate tax cut would swell the fed­eral bud­get deficit. When the non­par­ti­san Tax Pol­icy Cen­ter pub­lished an anal­y­sis this week, it found that even if vir­tu­ally all tax breaks were elim­i­nated, the cor­po­rate rate could drop only to 26 per­cent with­out in­creas­ing the deficit.

EVAN VUCCI — ASSOCIATED PRESS

In this Sept. 14, 2017, photo, Pres­i­dent Don­ald Trump talks with re­porters af­ter land­ing on Air Force One, in Fort My­ers, Fla.

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