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.

Thanksgiving thoughts on hunger

As we discuss and debate our fiscal future, proposals should be weighed by their effects on people, not with how well the line up with some ideological ideal.

Andrew Cannon photo
Andrew Cannon

Hunger will probably be the last thing on our minds this Thursday, as we enjoy Thanksgiving feasts.

But for thousands of our neighbors, hunger an everyday reality.

Each year, the U.S. Department of Agriculture (USDA) measures food security in the United States. Food security is defined as having adequate food and nutrition at all times for a healthy and active lifestyle.

An average of 12 percent, or 340,000 Iowans lacked adequate food and nutrition, or was food insecure, over a three-year period ending in 2010.

This is certainly not a new problem, but it is one that is on the rise in recent years.

Thousands of Iowans lost jobs or saw income drop as a result of the most recent recession. Food insecurity rates subsequently rose. But that number has been on the rise for much longer than just the past several years. In the mid-’90s, about 8 percent of Iowans were food insecure. By 2003, that figure had risen to 9.5 percent. By 2005, nearly 11 percent of Iowans were food insecure.

Solutions for problems as complex as food insecurity are never obvious. One thing, however, is obvious: Cutting food assistance programs will not help.

There’s an epidemic of budget-cut fever right now. Lost in the fiscal austerity discussions, however, are the effects such cuts would have on those who have been hardest hit by the recent recession, continuously rising food and fuel costs, and stagnant wages.

While some food assistance programs like the Supplemental Food Assistance Program or SNAP (formerly Food Stamps) are safe — for now — from cuts, many others, including free and reduced-price school lunch, the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) and the Emergency Food Assistance Program (TEFAP), which distributes nutritious fruits, vegetables, meat and poultry and other foods to food banks and pantries, are at risk of severe cuts.

As we discuss and debate our fiscal future, proposals should be weighed by their effects on people, not with how well the line up with some ideological ideal.

I recognize that I have so much for which to be thankful. The adoption of that standard by lawmakers would only make me more grateful.

Posted by Andrew Cannon, Research Associate

Food insecurity data symptom of larger affliction

Food insecurity, though a big problem, isn’t the problem. It is merely a symptom.

Andrew Cannon photo
Andrew Cannon

Here’s the good news from this week’s Department of Agriculture report on food security in America: Fewer American households reported serious disruptions in access to food in 2010 than in 2009.

Here’s the bad news: Overall, the number didn’t budge among Americans experiencing some level of food insecurity due to a lack of money. Nearly 49 million Americans — 16 million of whom are children — experienced hunger or the threat of hunger* in 2010 — a year in which, by official measures, the economy was improving.

Here’s where the bad news tells us: Food insecurity, though a big problem, isn’t the problem. It is merely a symptom.

In a lecture at the University of Iowa Wednesday night and in a recent New York Times commentary, former Labor Secretary Robert Reich diagnosed the real problem: stagnant income and wages.

It’s a problem IPP has recently noted, too. Our State of Working Iowa 2011 report found that median wages have stagnated and, adjusted for inflation, are lower now than they were a decade ago. And while the employment picture in 2010 improved, too many of those jobs pay lower wages than workers’ previous jobs — or are simply low-wage jobs, period.

The 2010 food security figures show that combating this particular symptom of stagnating incomes and wages — and others like it — requires different policy strategies. To name just a few: Increasing the wages and incomes of the middle- and working-class will require boosting the minimum wage, enforcing labor laws already on the books and making it easier for workers to unionize and enter collective bargaining contracts with employers, and encouraging employers to pay living wages.

Now, how about some more good news?

The data from recent years also suggests that stimulus measures in the 2009 Recovery Act worked as intended. Food insecurity elevated as the recession worsened in 2008; despite upward-creeping unemployment in early 2009, however, food insecurity held steady. The Supplemental Nutrition Assistance Program (SNAP), formerly known as Food Stamps, was boosted by the Recovery Act, increasing benefits and eligibility.

In other words, we can shape the economy; policy can improve situations.

Effective policy, of course, requires a correct diagnosis. In this case, the correct diagnosis requires looking at things a bit more holistically — looking at wages and other economic indicators in conjunction with food security numbers.

* Each year, the USDA measures food security — the “access by all people at all times to enough food for an active, healthy life.” Participants in the Census Bureau’s Current Population Survey — a nationally representative sample — are asked to respond to a series of statements and questions regarding the food situation in the household in the preceding 12 months. Household respondents responding negatively to several questions are classified as having “low food security;” those with negative responses to several questions and indicating disruptions in eating patterns due to a lack of resources are classified as having “very low food security.”

In the three years immediately following the onset of the recession (December 2007), the food insecurity rate among households has held steady at about 14.5 percent. In 2010, that meant 48.8 million individuals – 16 million of whom are children. This is a significant (both statistically and numerically) increase from the pre-recession years, when only about 36 million individuals, or 11 percent of households, experienced food insecurity.

Sample sizes are too small to provide one-year estimates for states; however, USDA does provide three-year averages. In Iowa, an average of 12.1 percent of households experienced food insecurity over the 2008-10 period, more than a third of whom experienced very low food security.

Posted by Andrew Cannon, Research Associate

Governor signs significant boost for Iowa families

Lily French
Lily French

Monday marked the enactment of possibly the largest investment for working families resulting from this year’s legislative session.

Governor Culver signed into law an expansion of the Food Assistance program that will reach 26,212 more Iowans who are struggling to buy enough food, either because they are unemployed, underemployed or simply have too low of wages even while working full-time to meet their day-to-day living expenses.

Not only will this program change help to secure almost $18 million worth of food for Iowans, it will provide a needed boost to local economies throughout the state. In the end, this piece of legislation will generate $33 million in economic activity over the next year and for years to come.  Now, we just have to let people know that new supports are available to help them!

Posted by Lily French, Outreach Coordinator