Corporate Tax Cuts: Rhetoric and Reality

Right now, most eyes are on Congressional Republicans and their last-ditch effort to destroy the Affordable Care Act, but those eyes will soon turn to the various tax “reform” efforts waiting in the wings.

Bookies are probably taking odds on the likelihood of Congress actually managing to reform the tax code. What constitutes reform, of course, is in the eye (or pocketbook) of the beholder–and that brings us to the arguments about corporate tax rates.

Proponents of a lower tax rate for corporations–Paul Ryan, President Trump and most Congressional Republicans–argue that reducing the rate will spur job creation. Opponents see no evidence for that assertion, and note that few corporations actually pay the current rate now–thanks to various credits and deductions, most of them pay an effective rate that is considerably lower.

Since the argument for reducing corporate taxes rests primarily on the assertion that such a reduction will translate into jobs, the Institute for Policy Studies researched that claim.

To investigate this claim, we set out to analyze the job-creating performance of the 92 publicly held American corporations that reported a U.S. profit every year from 2008 through 2015 and paid less than 20 percent of these earnings in federal corporate income tax.

These 92 corporations offer an ideal test for the proposition that lower tax rates encourage corporations to create jobs. By exploiting loopholes in the existing federal tax code, all these firms have reduced their tax rates to the level that Speaker Ryan and President Trump claim will stimulate job creation. Did these reduced tax rates actually lead to greater employment within the 92 firms? We crunched data available from the Institute on Taxation and Economic Policy to find the answer.

You can probably guess what the researchers found.

Tax breaks did not spur job creation.

  • America’s 92 most consistently profitable tax-dodging firms registered median job growth of negative 1 percent between 2008 and 2016. The job growth rate over those same years among U.S. private sector firms as a whole: 6 percent.
  • More than half of the 92 tax-avoiders, 48 firms in all, eliminated jobs between 2008 and 2016, downsizing by a combined total of 483,000 positions. 

Tax-dodging corporations paid their CEOs more than other big firms.

  • Average CEO pay among the 92 firms rose 18 percent, to $13.4 million in real terms, between 2008 and 2016, compared to a 13 percent increase among S&P 500 CEOs. U.S. private sector worker pay increased by only 4 percent during this period.
  • CEOs at the 48 job-slashing companies within our 92-firm sample pocketed even larger paychecks. In 2016 they grabbed $14.9 million on average, 14 percent more than the $13.1 million for typical S&P 500 CEOs.

Many of the firms that eliminated jobs plowed their savings into stock-buybacks; as the researchers pointed out, such buybacks inflate the value of the stocks and stock options that are a routine part of executive pay packages. The top ten “job-cutters” in the research sample spent $45 billion dollars over the last nine years on stock repurchases– “six times as much as the Standard & Poore 500 corporate average.”

The report identifies some of the worst corporate offenders (AT&T, Exxon-Mobil, GE and several others), all of which have effective tax rates lower than the goal set by Ryan and his crew, and all of which shed employees while raising executive pay.

As the researchers conclude:

Our nation also desperately needs a tax reform debate that dispenses with the fantastical notion that corporate tax cuts will automatically create good jobs for American workers. Policy makers should be focusing instead on ensuring that corporate America pays its fair share of the cost of job-creating public investments in infrastructure and other urgent needs.

A solid first step would be to eliminate loopholes that grant preferential treatment of foreign profits. U.S. corporations should have to pay what they owe on their current offshore holdings and not be allowed to defer these payments indefinitely. By continuing to allow offshore tax sheltering, policy makers are shifting the tax burden onto ordinary Americans and creating a disincentive for job creation in the United States.

As numerous economists and businesspeople have pointed out, jobs are created in response to increased demand for goods and services.

Increases in demand occur when significant numbers of working and middle-class people have disposable income–not when a small group of already obscenely wealthy CEO’s get paid even more.

 

29 thoughts on “Corporate Tax Cuts: Rhetoric and Reality

  1. While the corporations keep working to lower the Max tax rate, perhaps the rest of us should be working for a Minimum tax rate for Corporations doing business in the USA. There is ZERO logic in allowing billion dollar multi national corporations to take trillions of dollars from the US Economy and then pay NOTHING or next to nothing to keep our nation running. It is just wrong. There MUST be a minimum tax for Corporations.

  2. I get the impression that America’s 92 most profitable tax dodging firms are exactly that because they are dodging taxes. If the only reason they are so profitable is not because they grew, they innovated, they competed, but rather that they finagled, schemed, and cheated, what does that say about “capitalism”?

  3. If this is not germane, I apologize—but we have a case before SCOTUS, 16-1464, in which we seek to nullify the 2016 election results. You can read the Petition for Writ of Mandamus and Appointment of Special Master at Revote2017 dot net. I know it’s more than a long shot. We are giving it a try, however. This is the only case or legal effort that seeks the appropriate remedy. You also can read about it on my blog civildiscoursenow dot com. Thanks. And Professor, if this violates the decorum here, again I am sorry.

  4. I will sadly move back to my often repeated observation, while I still maintain support for President Obama, his greatest mistake was NOT to allow George W’s lower tax rate on the wealthy expire on the date George W set. It remains in place and continues to haunt us on many levels with Republicans taking control of Congress January 1, 2010, the original expiration date set by George W. We lost all hope of those tax rates ever again being returned to the higher, more fair, rate on corporations and the wealthy.

    In President Obama’s book, “The Audacity of Hope”; he tells of being summoned to a meeting with Warren Buffet shortly after his inauguration as Senator. Mr. Buffet’s primary question was why the wealthy were paying such low tax rates; adding that he paid a lower rate than his bookkeeper. So far; I have seen three of this country’s wealthiest people say loud and clear that they should be paying higher taxes; President Barack Obama, Warren Buffet and Stephen King. Not all are “corporations” but their incomes place them near or on the level of corporations.

    Expecting this government to lower tax rates on corporations or the extremely wealthy in this country has as much chance of happening as Confederate money again becoming acceptable payment for goods or services.

  5. Theresa,

    “…..but rather that they finagled, schemed, and cheated, what does that say about “capitalism”?

    At this point in time, capitalism in the US is nothing more than a SYMBOL of white oligarchy power. It no longer has any valid substance as you have so well pointed out.

    The same goes for Donald Trump. He’s about SYMBOLIC power. Facts, evidence et cetera have no effect on his actions. The truth of the matter is that Trump is an effective symbol of WHITE POWER. Nothing else matters. That’s why his base will not defect him.

    We better wake up to the REAL TRUTH before its too late.

    A terrific reference is “The Symbolic Uses of Power” by Murray Edelman (University of Illinois Press-Urbana, Chicago and London, 1967).

  6. This raises the question: Why is nobody in Congress talking about this obvious and stupid “tax reform” idea that will place a larger burden on what’s left of the middle class and the working poor? I guess Bernie Sanders and 12 other Democrats will come out against it, but the rest of Congress will remain silent or repeat the talking points – better pay for everyone, more jobs, blah, blah. And sadly, the voters will buy the bullshit.

  7. Theresa,

    I believe the following explains it best:

    “Research in a number of different sciences has referred to the key function of remoteness as an influence upon SYMBOLIC MEANINGS. One element involved here is the distinction between REFERENTIAL and CONDENSATION SYMBOLS. Every symbol stands for something other than itself, and it also invokes an attitude, a set of impressions, or a pattern of events associated through time, through space, through logic, or through imagination with the symbol. Students of this subject have noticed a fundamental distinction among symbols that groups them into two quite separate types. REFERENTIAL SYMBOLS are economical ways of referring to the objective elements in objects or situations: the elements identified in the same way by different people. Such symbols are useful because they help in logical thinking about the situation and in manipulating it. Industrial accident statistics and cost figures in cost plus contracts are referential political symbols, though they may be also condensation symbols.

    CONDENSATION SYMBOLS invoke the emotions associated with the situation. They condense into one symbolic event, sign, or act PATRIOTIC PRIDE, ANXIETIES, REMEMBRANCES OF PAST GLORY OR HUMILIATIONS, PROMISES OF FUTURE GREATNESS: some one of these or all of them.

    Where CONDENSATION SYMBOLS are involved, the constant check of the immediate evironment is lacking. A traffic policeman at a busy corner may grow entranced momentarily with himself or his stick as representative of the august majesty of the state and indulge in arbitrary power, perhaps by favoring traffic on one street; but the lengthening lines of cars in front of him and some irate honking will soon remind him that he must face reality: drivers and a prosaic chief of police. There is no such check on the FANTASIES and conceptualizing of those who never can test objectively their conviction that the government and their home towns abound in communist spies and dupes and that JOHN BIRCH symbolizes resistance to the threat. Nor is there the check of reality and feedback upon those to who Adali Stevenson or Barry Goldwater or Dwight Eisenhower are symbols of reason, intelligence, and virtue in public policy. Conclusive demonstrations that their heroes’ policies may often be futile or misconceived are impossible simply because the link between DRAMATIC POLITICAL ANNOUNCEMENTS and their impact on people is so long and so tangled. These people may be right or they may be wrong. The point is that there is no necessity, and often [not always] no possibility, of continuously checking their convictions against real conditions.

    No example can ever be wholly free of either referential or condensation symbols; but the distinction between the two types of behavior is fundamental in realistic political analysis.”

    “The Symbolic Uses of Power” by Murray Edelman (University of Illinois Press; Urbana, Chicago & London, 1967) pp. 6-7

  8. The words “Corporate Tax Cuts” are just shorthand for 7 other words which are: ‘The rich still don’t have enough money.’

  9. I will bet that several of those 92 companies paid zero in income taxes for several of those years. That is obscene. Even worse is the average pay of the CEOs. Do any of the S&P 500 companies’ CEOs really NEED $13.9 million dollars per year to live well? In the 1950s, when the top tax fate was over 90%, the average CEO made 20 times what the average worker made. Today, with a top tax rate of 39.9%,the average CEO makes over 200 times what the average worker makes. Average compensation goes up, but mostly at the top.

    It has been a pipe dream of mine to pass a law that would require every CEO to work for 1 month each year for the same pay as the lowest paid employee of his/her company.

  10. The conservatives figured out long ago that all they have to do to convince the public to accept what they are selling is make up lies and fake stories that tell the public what they want to hear. It works like a charm

  11. I believe this is the Link you intended for us to Follow: The 35 Percent Corporate Tax Myth
    https://itep.org/wp-content/uploads/35percentfullreport.pdf
    ========================================================

    Congress knows the lowering the tax rates to create jobs is a scam as this study proves. However, their masters on Wall Street want these lower rates, so they have to market it (sell it). The uniformed voters will buy it.

    Studies like this never seem to to receive any “air time” on our our Corporate News Networks.

  12. Here is an interesting story that is receiving almost zero coverage on the Corporate News Networks (FOX, CNN, MSNBC).

    Feds reportedly investigate Equifax executives’ stock sales: https://www.usatoday.com/story/money/2017/09/18/feds-reportedly-investigate-equifax-executives-stock-sales/677003001/

    Briefly: Equifax
    The attack was carried out from mid-May through much of July 2017, and primarily involved names, Social Security numbers, birth dates, addresses and, in some cases, driver’s license numbers, the company said.

    Regulatory filings show the executives’ stock sales were conducted in the days after Equifax discovered the cyber breach, and long before the company notified investors and the public.

    On Aug. 1, John Gamble sold Equifax shares with a market value of nearly $946,400, while Loughran exercised options to sell nearly $584,100, the regulatory filings show. Ploder sold company shares valued at nearly $250,500 on Aug. 2, the filings show.

    The company first publicly disclosed the cyber breach after financial markets closed on Sept. 7.
    Shares of Equifax (EFX) lost nearly 34.5% of their value from Sept. 7 through Friday’s trading close, falling from $142.72 to $92.98.

    ==============================================================
    I am sure if these Execs are called upon to testify before Congress they will each have a platoon of lawyers. They may plead the 5th, or issue statements of plausible denial. Congress will probably “shame” them in public, but that is the “show trial” part to validate to us Proles the “system” works.

  13. The Republican story on high corporate tax rates is phony. As I have often blogged, it wouldn’t matter if the corporate tax rate were 100 percent; what matters is the effective tax rate, which is far below that paid by many corporations in this country and elsewhere. I sometimes blog about American corporations who do not pay any taxes at all, and one, GE, even managed to get a refund a few years ago although they had a profitable year. I have also cited Boeing, that giant defense industry and recipient of billions of dollars per annum from our “defense” larder, a corporation Trump recently addressed and ended with “God Bless Boeing,” thus providing divine sanction to the process of greed and flag-waving. Boeing has effectively paid no taxes for the past five years and get this: Some of their production of wings are outsourced to China, so that in addition to not paying taxes they are helping to prop up the Chinese economy at the expense of their union workers in Everett and in other venues along with the revenues we could otherwise be collecting from manufacturing wings in this country. So much for flag waving and fear mongering to cover pure greed! I could go on and on but for time and space with tax stories involving Mitt Romney (carried interest), tax treatment of overseas profits (no liability unless repatriated) and Wall Street operators – all at the expense of the rest of us taxpayers who have few if any deductions and credits from income and are thus exposed to payment of our national debt far beyond the proportion the superrich should be paying. Meanwhile, let’s call the so-called “tax reform” framing what it really is – “Tax cuts for the rich and corporate class.”

  14. Steven Smith: I heard it this way: The Republicans think the poor have too much money and wealthy don’t have enough.

  15. Their tribe is in charge, folks, and they are going to get what they want. As the great conservative Bobby Knight once said, “…if rape is inevitable, relax and enjoy it…”

    Reality: they are the Tories, the monarchists, the authoritarians, the bully party. Yes, they literally are the people who cheer for bullies. All of our reasoned arguments will fall on deaf ears. They are the assholes of the world, the bullies and their toadies, and they will take what they want unless we fight them. We may or may not yet have a chance to beat them electorally, or if it is too late for that we may have to defeat them by force.

  16. Trumpublicans have a dream. A dream to saw off the bottom half of America and rebuild the country as the land of the wealthy like Monaco.

    They haven’t of course thought much about what the reaction of the bottom half would be, they assume some slick talk would keep them calm, nor have they addressed how the top half could survive on their own.

    Details. It’s the big picture that they are captivated with.

    They have gotten away with some small steps which has emboldened them.

    America’s only hope is the voting booth but that should be enough.

  17. A panelist on The 1A this morning talked about the shift that has taken place over several decades from corporations that trained and paid their employees a relatively fair wage, participated as interested parties in community enhancement programs, paid a fair share of taxes, some even bragging about it, paid their upper managers well and their shareholders made a reasonable return on their investment. The shift was to compensate shareholders before employees, avoid taxes (lobbying and contributing to those who provide loopholes) push specialized training (often not transferable) off on the non-corporate taxpayers (employees) and maximize compensation into the hands of upper management at the expense of lower level employees.
    The end result is the continuing concentration of wealth into fewer and fewer hands, the new aristocracy. Off-shore accounts, deferred tax liability, employees paid far less than their value to the outcome, shedding benefits to those employees in favor of increased stock dividends have allowed the development of corporations whose loyalties are to themselves alone. Politicians are bought with the increased wealth as they are initiated into the aristocratic class.
    An example : Tom Price who, as a Congressman, railed against irresponsible spending by bureaucrats, has spent obscene amounts on private jet travel because commercial air travel is not dependable and would inconvenience him. He also cited security issues. Apparently, his convenience and protection are more important now that he is in the bureaucracy himself. Private jet travel is, I suspect, just the tip of the iceberg.
    The future looks pretty grim for commoners in the new order. Suppression and militarization of domestic law enforcement are the tools the aristocracy will continue to use to rule. It is worse than “sad”, more like tragic.

  18. Ideally corporate tax reform would establish a tax for businesses and corporations based on revenue minus legally accepted cost of doing business. “Accepted” means we have some say in which costs legally count. In my world, CEO Salaries above a certain percentage of lowest paid employee wouldn’t count as a legal cost. But cleaning up your messes would count as a legal cost, as would research and development. What kind of R&D? A zillion more shampoos on store shelves? Or antibiotics that work on resistent bacteria? Both are products. There’s the detail devil. How are you going to write that law? Are you going to say, only products that are “socially good” get a tax break? Who decides what “socially good” is? Your elected representatives decide.

    I am assuming that most people agree that there are basic costs to running a company, big or small, that everyone recognizes. You buy lemons, sugar, and water. You build a little stand, or borrow your mom’s cardtable. You pay your little brother something for helping you out. You sell your lemonade, and your profit (or loss) is what’s left after your costs. But there are always costs that are specific to each business, that few people outside those fields of study understand. You have to understand them in order to make a thoughtful and realistic decision on which costs are necessary and which are ridiculous add ons. Otherwise you’re just jumping on the sloganeering bandwagon like good little sheeple, ready to be led by the opinions of political and opinion leaders who also don’t know much about the details – they just know they don’t like it and someone else is to blame, and those people who don’t agree are unethical and corrupt, because, well, because…. circle back to “they don’t agree with me.”

    Taxes have to provide enough revenue to support what we need as a country. Most of the time we can’t get Congress to even agree on what we need as a country, because representatives represent people in different areas of the country, who do different things. Taxes can’t be punitive, or they kill the golden goose, and they have lots of unanticipated consequences. The classic example in unanticipated consequences was the British decision to tax the rich, by taxing the number of windows in their big London houses. “The rich” boarded up their windows, moved to their country estates, rented to poor people, and created the darkest, most noxious, unhealthiest, criminal ridden slums Britain ever had – for generations. Most people know there are real costs in running a business, that are subtracted from revenue, to find the actual profit. But the devil is in the details, because one person’s cost is another person’s loophole. A subsidy, or tax break, that the majority agrees on initially, that doesn’t have a sunset clause, eventually turns into an entitlement and an unnecessary counter-productive burden – fossil fuel subsidies vs renewable energy R&D tax breaks, for instance.

    We all think we know what a fair and equitable business tax would be. And we do, in a general sense. It is clear there are abuses, and old counter-productive laws on the books. But the minute you scratch the surface, you find all those details. If we were a rational species, we would do major studies, actually learn as much as possible about our tax needs and how they affect different sectors and businesses, and figure out flexible plans that have a good chance of working. Instead we demonize anyone who doesn’t agree with what we imagine we mean. We kick the can down the road.

  19. We need this article/post to go on the WAPO or NYT pages so that everyone can read this. Well done Professor. Thanks.

  20. We should probably adapt our thinking regarding tax cuts for corporations as an impossible reality. The Republicans are not going to cut their own throats by raising taxes on their biggest lobbyists with the deepest pockets. Corporations put them where they are in Congress and will keep them there unless “we the people” vote them out in upcoming elections. This is all a Monopoly game to them; they own Boardwalk and Park Place plus all railroads and utilities. They co-exist by maintaining mutual support and it appears they will never be handed the “Go Directly To Jail, Do Not Pass Go, Do Not Collect $200” card…plus they own many of the prisons they should be sitting in.

    Tax cuts for corporations may be a Monopoly game but today I came to the realization that the health care system is a tennis tournament; the Senate will pass their current health care bill with the insurers complaining but well aware of the fact that it will be handed back to the House where they will deny the bill and begin rewriting it…again.

    For some reason, yesterday I received my “Medicare and You 2018” book; “Medicare and You 2017” arrived with incomplete, due to being unknown, information and has never been updated. “Game, Set, and Match” for the Trump team.

  21. as a medium wage working class,non home owner,no wall street scams,or investments,yea, pay check to,paycheck living, im not suprised by the billionaire class needs to have more. with flat wages for 30 years, and a takeover from the wall street mob, tax cuts have no effect for me. other than,no safety net,because of some scam from the billionaire class,jobs go overseas,investment scams,retirement plans disintergrate,pensions vaporize. the likely things that go up,in smoke…im still waiting for reagans trickle down plan…. but since its trumps turn, does that mean his guilted cage on top of the world,when he flushes,well you know where the working class is?….. i’m sure most of the readers here, from reviewing the posts, seem to have money to invest,secure a future,and etc, though one would believe anyone can do this, i cant, but thanks for the privilege to be able to work,and increase your investment,while the typical working class gets,well the flush… trickle on…

  22. This article (link below) under the heading of ECONOMIC RESEARCH and published by THE FEDERAL RESERVE BANK OF ST. LOUIS presents an interesting graph about job creation from the 1930s to the present.

    Just look at that steep uphill rise year after year! I am impressed by the relative constancy of job growth in America. THE RECESSIONS AND THE ONE DEPRESSION ARE MERE PAUSES IN THIS CLIMB. And it appears that the only real driving force to job creation is SPENDING by a rapidly increasing population.

    I would like to see our decade-to-decade growth in population plotted on this graph. I would bet that it would nearly duplicate the job growth line.

    Additionally, I would like to see an overlay on this graph showing each era that is marked by a prevailing economic strategy.

    I could add those two pieces of data to the graph, but I am
    homework averse, …but gee, I’d like to see someone else do it.

    https://fred.stlouisfed.org/series/PAYEMS

  23. Of course I meant “a possible reality”, not impossible. Although; with the current low rate and all those corporate loopholes, it might be impossible to lower their rates further.

  24. What have the Democrats accomplished to stave off Republican and corporate welfare over the preceding decades?

    Not a thing.

    Democrats,just as the Republicans ,have the best interests of the investment and donor class in mind. After all,the plebes can’t afford to attend and host $2,500 a plate political fundraisers.

    Here’s a good article wrt PE and the recent Toys R Us bankruptcy.

    Btw,who is lending these PE firms their money? Could it be the same lenders Obama capitulated and bailed out? Who now is paying the former Pres those wonderful $400,000 speeches? Kaching!

    https://www.nakedcapitalism.com/2017/09/toys-r-us-another-private-equity-casualty.html

  25. The term entitlement applies to both elected officials and corporations because their actions in their own behalf have gone on for so long the thought of behaving ethically is not an option.

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