Beware corporate tax con job

Those who want us to believe in the magic of trickle-down economics are trying the oldest tactic in the books: misdirection.

EDITOR’S NOTE: A version of this piece appeared in the Wednesday, Nov. 29, 2017, Cedar Rapids Gazette. Online version here.

Those pushing the tax bill now before Congress have a tough job. They have to convince ordinary taxpayers that they should embrace a bill that gives massive tax cuts to corporations and rich people, raises the national debt, results in millions losing health care, and sets the stage for huge cuts in programs, from Medicare to food assistance to education.

Their principal argument — that trickle-down economics is going to bestow jobs and wages on the middle class — is a con job.

Why do U.S. corporations need a tax cut when they are already paying taxes at a lower overall effective rate than in other advanced economies? They don’t.

You have probably heard just the opposite: that our rates are the highest in the world, a skewed view that ignores only the nominal tax rate is higher than most other countries. In fact, a myriad of deductions and loopholes brings the actual rate corporations pay way down, to below average.[1]

The huge deficits created by this tax bill — $1.5 trillion over 10 years — would push interest rates up and would choke off investment, counteracting any tendency of the corporate tax cuts to increase investment. Furthermore, an examination of developed economies across the globe shows that corporate tax cuts over the past 15 years have not produced growth in capital investment. [2]

Nor is a cut in corporate tax rates going to lead to wage increases. U.S. corporate tax rates were slashed in the late 1980s, and in the years since we have seen the historic link between productivity and wages broken. In other words, the last corporate tax cut ushered in a period of stagnant wages, even though productivity continued to rise.

Think of it this way: Why would we expect tax cuts now would lead to corporations sharing productivity growth with workers through higher wages? It hasn’t been happening for the past 30 years.

It gets worse. The bill is supposed to be only $1.5 trillion because there are other tax increases that hold down the total. However one of those offsets won’t work as planned. A minimum tax on overseas profits, which sounds like a good idea, will actually provide an incentive for multinational companies to move American jobs overseas in order to escape the new tax.

Those who want us to believe in the magic of trickle-down economics are trying the oldest tactic in the books: misdirection. Focus on this shiny bauble — a small cut in your taxes in the short run — and this pie-in-the sky promise of jobs and higher wages; pay no attention to the billions of dollars going to corporations and the rich, and the inevitable cuts in programs, from health care to education to Medicare.

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. pfisher@iowapolicyproject.org

 

[1] U.S. corporation income taxes amount to 2.2 percent of GDP, while other advanced economies (the remaining countries in the Organization for Economic Cooperation and Development) collect 2.9 percent of GDP in corporate taxes. See “Common Tax ‘Reform’ Questions, Answered.” Josh Bivens and Hunter Blair, Economic Policy Institute, October 3, 2017.

[2] Josh Bivens, “International Evidence Shows that Low Corporate Tax Rates are not Strongly Associated with Stronger Investment.” Working Economics Blog, Economic Policy Institute, October 26, 2017.

Stewardship, community and freedom

The assault on our public structures by convenient, slick, political messages of the day defies American values of stewardship and community.

Today America faces a daunting task: finding a way to reduce deficits and debt while not crashing the economy and still maintaining the critical services that are only, or best, provided by the public sector.

At the Iowa Policy Project, we have the opportunity to work with many similar state and national organizations — nonpartisan, nonprofit, issue-focused and fact-based analysis at the heart of their missions and their work. One of these colleagues, Michael Lipsky, distinguished senior fellow at Demos, recently wrote a column in The New York Times about a hiking trip in the Pasayten Wilderness in Washington state, near the Canadian border.

In his excellent piece, “A Well-Regulated Wilderness,” Lipsky wrote that, even there, he found himself thinking about government. “Not that there was much of it in sight,” he remarked. He continued:

There were no rangers to check our reservations, no posted rules telling us where and how to set up camp.

Michael Lipsky, distinguished senior fellow, Demos
Michael Lipsky, Demos

If anything, the Pasayten seemed to prove that we don’t need government, that humans can be self-regulating: per the unofficial rules of backpacking, most of our campsites had been reused repeatedly, to minimize damage to the environment, and litter was rare.

On reflection, however, this nursery of freedom spoke directly to the role of government in shaping our world. It was thanks to decades of effective lawmaking that we could enjoy four days in the open country, fixing meals, hiking and spending family time together. … Americans once feared the wilderness and sought to tame it. Now we seek it out as redemptive. …

In 1964 Congress passed the Wilderness Act, which set aside 9.1 million acres of public land as places where people would be visitors but not leave any marks; today some 108 million acres are protected under the act.

Mike Owen
Mike Owen

Michael Lipsky’s perspective is spot-on. Let’s look at it another way: Would Exxon have done this? Or Microsoft? Or Wal-mart? Would it even make sense for them, or their stockholders, to do so? To whose mission, then, do such responsibilities fall? Does it not make sense that this would fall to the federal government? Would you not say the same about basic economic safety-net programs? Infrastructure such as roads and bridges? Workplace safety? Clean water and clean air protection? Civil rights and education? National security?

The assault on our public structures by convenient, slick, political messages of the day not only disregards, but defies, what in our hearts and minds we know are the American values of stewardship and community that are the thrust of what government does.

We’re all concerned about deficits and debt and the impact on our children and grandchildren, but we also must be challenged to address the impact on those future generations of a failure to accept the mantle of responsibility of maintaining and nurturing the structures that have sustained us, when “self-regulation” is not enough. For if we do fail on that score, it will be every bit as much a debt as one of dollars.

Posted by Mike Owen, Assistant Director

Why a balanced approach is the only option

The Bush tax cuts, and plugging corporate tax loopholes, are on the table in the world of reality, if not the world of politics.

Mike Owen
Mike Owen

It has been said that there are many ways to skin a cat — not that I’d be willing to try any of them.

Likewise, there might be many serious ways to balance the federal budget — not that enough people in Washington are willing to try any of them. And some have closed the door on the only real way to do it: with balance.

Even the House speaker says all options must be on the table, except revenues. This, despite the fact that lost revenues holds a greater share of our building debt than any other single cause.

CBPP graph on deficit causes
This Center on Budget and Policy Priorities graph illustrates shares of the current and future deficits, by cause. Note the orange bar — Bush-era tax cuts.

As Kathy Ruffing and James Horney point out in their recent paper for the Center on Budget and Policy Priorities:

By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time. …

The President and Congress could make major progress toward stabilizing the debt for the coming decade by letting all of the Bush tax cuts expire on schedule at the end of 2012.

The fact is, we cannot afford not to use a balanced approach to the deficit and debt challenges facing the United States now and in the future.

The Bush tax cuts, and plugging corporate tax loopholes, are on the table in the world of reality, if not the world of politics. It is impossible to avoid their relationship to the debt, even if, somehow, people are finding it possible to ignore them.

Posted by Mike Owen, Assistant Director