Tax cuts for the rich won’t help our economy
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.