Tax cuts for the rich won’t help our econ­omy

USA TODAY US Edition - - NEWS - Feli­cia Wong

Mod­ern con­ser­vatism was built on cutting taxes, sup­pos­edly be­cause cutting taxes for suc­cess­ful peo­ple will spur them to cre­ate even more wealth, which will trickle down to the rest of us in the form of jobs. So it’s no sur­prise to see cutting cor­po­rate taxes, from a nom­i­nal 35% rate to as low as 15%, at the top of the wish list for the Repub­li­can tax “re­form” drive that Pres­i­dent Trump kicked off Wed­nes­day.

What is sur­pris­ing, and dis­may­ing, is how many peo­ple out­side the GOP re­peat the idea that cor­po­rate taxes are hold­ing back our econ­omy de­spite the pile of ev­i­dence that says the op­po­site.

First of all, the ef­fec­tive tax rate that cor­po­ra­tions pay — mean­ing the ac­tual rate af­ter cred­its and de­duc­tions are taken into ac­count — is roughly 20%.

And the the­ory — cut taxes on cash-strapped com­pa­nies so they have money to in­vest and spur growth — doesn’t match re­al­ity. U.S. cor­po­ra­tions are mas­sively prof­itable and sit­ting on close to

$2 tril­lion in cash. But in­stead of in­vest­ing in cap­i­tal im­prove­ments or worker pay to ben­e­fit the broader econ­omy, ex­ec­u­tives raise their own salaries and juice the price of their stock op­tions.

Fi­nally, we’ve tried this be­fore and we know how it ends. In

2004, Congress re­duced cor­po­rate tax rates to en­cour­age firms to “repa­tri­ate” funds held overseas and to drive more cor­po­rate in­vest­ment. The re­sult was bad all around: The top ben­e­fi­cia­ries of the law cut more than 20,000 net jobs, slowed their re­search spend­ing, and spent more on ex­ec­u­tive com­pen­sa­tion and stock buy­backs even though the law ex­plic­itly said not to.

More re­cently, Kansas Gov. Sam Brown­back mas­sively slashed state tax rates on cor­po­ra­tions and high in­di­vid­ual in­comes. In­stead of un­leash­ing growth, this led Kansas to grow more slowly than its neigh­bors and caused a bud­get deficit so se­vere, the rat­ing agency S&P de­scribed it as struc­turally im­bal­anced.

If Congress wants to boost the econ­omy and drive job growth, there are many tax changes that could help. For ex­am­ple, my col­leagues at the Roo­sevelt In­sti­tute sug­gest that tril­lions of dol­lars can be found by tax­ing un­pro­duc­tive fi­nan­cial and cor­po­rate ac­tiv­i­ties that do not yield real growth, start­ing with a fi­nan­cial trans­ac­tion tax. Those dol­lars could be in­vested in real projects, from roads and bridges to uni­ver­sal broad­band and even free col­lege, that would strengthen a mod­ern, com­pet­i­tive econ­omy.

Demo­cratic lead­ers have ar­gued that re­form can­not sim­ply be a cover for giv­ing more to the wealth­i­est. But not ev­ery Democrat signed on, and the Trump White House con­tin­ues to court the hold­outs.

Repub­li­cans will do ev­ery­thing in their power to achieve their tax cutting dreams. And to Trump, tax “re­form” is sim­ply a way for the rich to scam money from ev­ery­one else. So shame on any­one — es­pe­cially wa­ver­ing Democrats — who ig­nores the pain out there and suc­cumbs to the siren song.

It’s not high cor­po­rate taxes that are hold­ing our econ­omy back; it’s the dy­ing, stub­born myth of trickle-down.

Feli­cia Wong is pres­i­dent and CEO of the Roo­sevelt In­sti­tute.

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