Don’t be fooled, corporate tax cuts take from the many to give to just a few.
While we’re talking about taxes…
Over the weekend The Zero Hour with RJ Eskow interviewed economist Dean Baker, co-director of the Center for Economic and Policy Research, to talk about “A New Way to Make Corporations Pay Their Fair Share.”
The idea is, as Baker wrote last week in the LA Times, Instead of taxes, make corporations give the government stock,
If the tax reformers are serious, and I hope they are, here’s one simple way to largely eliminate the gaming opportunities that have made these people rich.
Instead of traditional taxes, the government could require corporations to turn over a portion of their stock, say 25%, in the form of non-voting shares. The government would benefit from any dividends or share buybacks but would have no voice in running the company.
This system would eliminate almost all opportunities for gaming since a company would not be able to deny the government its share of profits unless it also withheld profits from its other shareholders. And we would not call that “tax avoidance” but outright theft – the sort of thing that gets people sent to jail.
This government (We the People) share of corporations would replace taxation, because the government would collect dividends or the value of the share would increase along with the profits (formerly taxable) of the corporation. The government and corporate tax-accounting bureaucracies would be unnecessary. Our democracy would receive revenue so it can do things to make our economy and lives better.
Why should the government (We the People) have a share of corporations? People generally do not understand what a corporation really is, and this common misunderstanding works to be benefit of those who make money off of them.
Corporations are entirely creations of government. They don’t exist without government. A corporation is a package of laws designed to accomplish a public purpose.
Individuals do not generally have the kind of capital available to accomplish large-scale projects like building a series of factories to make cars or airplanes. It’s also risky to sink so much of one person’t holdings into something like that so those with sufficient resources might not do it.
So government (We the people) created corporations to enable pooling of capital and reduction of individual risk. We (through our government) grant these entities the right to enter into contracts, write checks, hire people, borrow money, file lawsuits, etc. as if they were a “person.”
A common misconception is that shareholders “own” corporations. They do not, but shareholders do elect the Board of Directors, which hires people to manage the corporation according to the Board’s instructions.
People tend to think of and talk about corporations as sentient entities. But corporations do not think or decide or act or anything else. The managers of the corporation do that. For example, “Wells Fargo” did not “decide” to commit fraud against their customers, the corporation’s executives — people — did that.
Another common misconception is that corporations are required by law to do whatever they can to make profits for the shareholders. In fact this is a relatively recent concept that flourished as people’s understanding of the purpose of corporations diminished. In fact government does much to limit what corporations can do while seeking profits. They cannot (aren’t supposed to) kill or injure people to increase profits, cannot poison the air and water, cannot commit fraud, etc.
So the idea that government should keep their hands off of corporations and not hold some percent of them for the benefit of We the People is really preposterous. This thinking misunderstands what a corporation is, how and why it exists and what its purpose is.
The goal of Baker’s idea is to create a system where corporations are paying their share to We the People, without all of the incentives to come up with schemes to avoid taxes. Baker’s idea accomplishes that goal. Baker suggests that government hold 25% of corporate shares, but the tax rate has already dropped from 52% to 46% under Reagan to 35% today, and the corporate share of the overall tax burden has fallen from 32% to only 10%. SO perhaps a higher share would be appropriate for restoring revenue and democracy.
(See Lynn Stout’s The Shareholder Value Myth for a deeper dive into what and why a corporation is.)
After 8 years of complaining about “Obama deficits,” Republicans are proposing huge, dramatic, unprecedented tax cuts, especially for corporations. President Trump wants the rate cut from 35% down to 15%, denying the government $2 trillion of revenue over the next decade. He is also proposing dramatic income tax cuts for billionaires like him.
Republicans call corporate tax cuts “pro-growth,” saying they will give the economy a boost. Trump’s Treasury Secretary says the plan will “pay for itself with economic growth.”
So now they’re for “stimulus”?
But here’s the real question: do tax cuts actually boost economic growth?
What Tax Cuts Actually Do
In 2012 the Congressional Research Service looked at the data from past tax cuts and the effect they had on the economy, and issued a report titled, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945. The summary explained,
This report attempts to clarify whether or not there is an association between the tax rates of the highest income taxpayers and economic growth. Data is analyzed to illustrate the association between the tax rates of the highest income taxpayers and measures of economic growth.
And what did the study find?
There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.
In fewer words: There is no evidence that tax cuts bring economic growth, but they do cause income to concentrate at the top.
But wait, it’s worse than that. Tax revenues build roads (and bridges and airports and rail systems and and water systems…), educate the population, conduct scientific research, run the courts, enforce regulations, standardize (and enforce) weights and measures, and about a million other things that make businesses prosper.
If you cut taxes, over time the business environment necessarily gets worse because those roads deteriorate, people are not as well educated, scientific research declines, courts clog up, regulation enforcement declines, along with about a million other things that businesses rely on. If you can’t get educated employees, can’t move goods on crowded and deteriorated roads and your competitors can get away with cheating, your business just isn’t going to do as well as it could.
Tax cuts defund all of those things that boost the economy and make our lives better. Over time the economy necessarily gets worse.
Are Taxes Theft?
Republicans say “taxes are theft.” They say “taxes take money out of the economy.” They say it “takes from those who work and earn and giving to those who don’t.” They say taxation “extracts wealth.” The idea behind this is that government is illegitimate and “uses force’ to “take people’s money” so “they” can have it instead. They argue there are “producers” and “moochers” and the moochers outnumber the producers and take from them.
These are all actually arguments against democracy. Substitute the words “We the People” for the word “government” in their arguments and you’ll see how this works. The “they” in their arguments isn’t some “other” that grabs the money, it is We the People. The idea of democracy is that We the People have a government and we decide how to allocate the resources of our economy to make our lives better. That means taxing and spending.
Democracy is taxing and spending. And by definition government sending is on things that make our lives better.
Are tax cuts theft? Or are they really about theft of democracy from We the People?
From Tax Cuts Are Theft,
The American Social Contract: We, the People built our democracy and the empowerment and protections it bestows. We built the infrastructure, schools and all of the public structures, laws, courts, monetary system, etc. that enable enterprise to prosper. That prosperity is the bounty of our democracy and by contract it is supposed to be shared and reinvested. That is the contract. Our system enables some people to become wealthy but all of us are supposed to benefit from this system. Why else would We, the People have set up this system, if not for the benefit of We, the People?
… The American Social Contract is supposed to work like this:
… But the “Reagan Revolution” broke the contract. Since Reagan the system is working like this:
Tax cuts eat the seed corn of our prosperity. We shouldn’t fall for yet another Republican con, this time from the con-man Trump.
The Trump administration, as have all Republican administrations, is promoting tax cuts for the rich, saying they will “create growth.” Never mind the destructive history of tax cuts, the destructive history of “trickle-down economics” (and the destructive history of Republican administrations generally) — they’re doing it again.
Getting A Few Bamboozlements Out Of The Way
Any time taxes come up, decades of Republican bamboozlement gets in the way of rational discussion. Republicans say things like “taxes take money out of the economy” and “tax cuts create growth” to trick people into supporting tax cuts for the rich and corporations (which are really just more tax cuts for the rich).
So it is reasonable to look at what has actually happened when taxes on the rich have been cut. History shows that tax cuts have never produced “growth.” (See also, the Congressional Research Service’s non-partisan study, “Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945“: “Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth.” Also, take a look at what happened in Kansas and six other states when they tried to grow their economies through tax cuts.)
Tax Cuts Defund Our Democracy And Concentrate Power At The Top
So tax cuts do not “grow the economy.” They just don’t. But tax cuts and the resulting drop on revenue to our democracy are used to force cuts in the things our government does to make our lives better and help our economy prosper in the longer term.
When people have a say in how their government is run they say they want good schools and colleges, good infrastructure, health care, scientific research, good courts, and all the things that government can do to make our lives better. They also say they want a “flatter” wealth distribution, with people at the bottom having a way to make a living, and people at the top helping pay for our democracy by pitching in more of the gains that democracy brings.
When people don’t have a say in how their government is run, the economy delivers for a few at the top while leaving the rest behind. And this concentration of wealth also concentrates their power over our governmental decision-making.
Tax cuts don’t just force a drop in revenue to our democracy, they push the benefits of our economy to a few at the top. The Congressional Research Service study mentioned above, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, found that tax cuts do not bring economic growth. The study also found, “However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”
Democracies demand high taxes at the top because the revenue is good for the economy in the long term. Taxes bring in revenue to pay for education, scientific research and improvements in infrastructure that cause the economy to grow. Investing in modern transit systems, smart grid, energy efficiency, fast internet and other improvements leads to a huge payoff. Infrastructure improvement and maintenance is the “seed corn” of economic growth. We have been eating that seed corn since Reagan’s tax cuts. Prosperity is the fruit of democracy.
Tax cuts do not “take money out of the economy”; they redistribute it to places where We the People decide it can be better used to help make all of our lives better and grow our economy. But the Reagan tax cuts were used to force cuts in things like education, scientific research and, unfortunately, maintaining and modernizing our infrastructure.
Our economy has been in trouble ever since. From the 2010 post, Reagan Revolution Home To Roost — In Charts:
Working people’s share of the benefits from increased productivity took a sudden turn down:
This resulted in intense concentration of wealth at the top:
And forced working people to spend down savings to get by:
Which forced working people to go into debt: (total household debt as percentage of GDP)
None of which has helped economic growth much: (12-quarter rolling average nominal GDP growth.)*
Tax cuts steal from democracy.
Tax Cuts Force Unsustainable Business Models
The dramatic decrease in top tax rates has also forced unsustainable “sell the farm” business models.
From the 2010 post 14 Ways A 90 Percent Top Tax Rate Fixes Our Economy And Our Country:
A return to Eisenhower-era 90% top tax rates helps fix our economy in several ways:
1) It makes it take longer to end up with a fortune. In fact it makes people build andearn a fortune, instead of shooting for quick windfalls. This forces long-term thinking and planning instead of short-term scheming and scamming. If grabbing everything in sight and running doesn’t pay off anymore, you have to change your strategy.
2) It gets rid of the quick-buck-scheme business model. Making people take a longer-term approach to building rather than grabbing a fortune will help reattach businesses to communities by reinforcing interdependence between businesses and their surrounding communities. When it takes owners and executives years to build up a fortune they need solid companies that are around for a long time. This requires the surrounding public infrastructure of roads, schools, police, fire, courts, etc., to be in good shape to provide long-term support for the enterprise. You also want your company to build a solid reputation for serving its customers rather than cheapening the product, pursuing quick-buck scams, cutting customer service, etc. The current Wall Street/private equity business model of looting companies, leaving behind an empty shell, unemployed workers and a surrounding community in devastation will no longer be a viable business strategy.
3) It will lower the executive crime rate. Today it is possible to run scams that let you pocket huge sums in a single year, and leave behind the mess you make for others to fix. A high top tax rate removes the incentive to lie, cheat and steal to grab every buck you can as fast as you can. This reduces the temptation to be dishonest. If you aren’t going to keep the whole dime, why risk doing the time? When excessive, massive paydays are possible, it opens the door to overwhelming greed and a resulting compromising of principles. Sort of the definition of the decades since Reagan, no?
Who Pays For Tax Cuts?
Conservative economics claims that tax cuts do not have to be “paid for.” (Modern Monetary Theory shows otherwise, but that’s for another post.)
Trump uses the old “tax cuts pay for themselves” bamboozlement to claim that much of the revenue lost from his tax cuts will be made up for by increased growth. They won’t, of course. Trump also throws in a number of things that will actually increase taxes on the non-rich, while hurting homeowners and nonprofit organizations.
One place the Trump tax cuts plan to “pay for” the huge windfall for the rich is by limiting or eliminating the mortgage interest tax deduction.
Another “pay for” is eliminating tax deductions for charitable giving. In “Will Trump’s Tax Plan Hurt Philanthropy?” Ben Paynter explains what this will do to nonprofits.
“In the long run, the Center for Effective Government estimates that the proposed policy could reduce cause organization funding by $9.1 billion annually. And United Way Worldwide has reported that nearly two-thirds of Americans might reduce giving by 25% or more.”
Marques Chavez of The Alliance for Charitable Reform names a few names, in a letter to the editor that appeared in The Hill
“The Tax Policy Center found that a cap on the charitable deduction, as proposed by President Trump, would cost as much as $26 billion in charitable giving in one year. That is more than the combined operating budgets of the American Red Cross, Goodwill Industries International, YMCA of the USA, Habitat for Humanity, Boys and Girls Clubs of America, Catholic Charities USA, the American Cancer Society, United Way Worldwide and Feeding America.”
What tax cuts actually do is steal our democracy out from under us.
The Republican Congress and President Trump are proposing more huge tax cuts for the rich and corporations. Call your member of Congress and your senators, and visit their offices, to let them know how you feel about this. Join #ResistTrumpTuesdays here.
This post originally appeared at Campaign for America’s Future (CAF) at their OurFuture site. I am a Fellow with CAF, a project of People’s Action. Sign up here for the OurFuture daily summary and/or for People’s Action’s Progressive Breakfast.
Now that Republicans are running Congress and the executive branch, they’re planning to “reform” (cut) corporate taxes (again). This time they using the subterfuge of “this will make companies more competitive.” What does that mean? Of course, under Republicans, it really means one and only one thing: cutting taxes on the rich — rich people.
The top corporate tax rate used to be 52 percent. Under President Ronald Reagan it was 46 percent. Then Congress “reformed” corporate taxes and dropped the rate to just 35 percent. (Except for giant, multinational corporations. They were handed a “deferral” break that cut their taxes to zero.)
Corporations used to shoulder 32 percent of the total tax burden. Now they shoulder only 10 percent of the burden — a drop of two-thirds. The difference has been made up from cuts to infrastructure, schools, health care, scientific research and all the things our government does to make our lives better — and to help our economy prosper over the long term.
That’s the trade-off when taxes are cut. It means our government has to cut the things it does to make all of our lives better.
Who Gets That Money?
As corporate taxes were cut (thereby making it harder for the government to do things that make our lives better), where did that money go instead? It obviously didn’t go toward higher wages or shorter working hours or other things that might have made the tradeoff somewhat worth it for regular people, at least in the short term. No, time has shown us here it went: straight to a few at the top.
Politifact said it was true when Bernie Sanders, in Madison, claims top 0.1% of Americans have almost as much wealth as bottom 90%. Joshua Holland explains how it happened, writing at The Nation in 2015 in 20 People Now Own As Much Wealth as Half of All Americans,
The concentration of wealth at the top isn’t the result of some sort of organic process. The top one-10th of 1 percent of American households controlled about 7 percent of the nation’s wealth in the mid-1970s. By 2000, their share had grown to about 15 percent, and today it’s well over 20 percent. Those at the very top didn’t become three times as smart or lucky or good-looking in the intervening years. They’ve benefited from changes in things like trade policy, the tax code, and collective-bargaining rules — all policy changes they’ve used their wealth to champion.
That is where the money goes when corporate taxes (and rules and regulations and the bargaining power of regular people) are cut. It goes to a few actual, living people instead of toward the betterment of all of us and our economy.
Corporations Don’t “Do” Things. They Don’t “Make Decisions” or “Talk”
Over the last few decades a constant barrage of corporate/conservative propaganda has misinformed public understand of what corporations are, and why we have them. People have come to think of corporations as sentient beings that “do things,” like make decisions and speak. But corporations are things, like chairs and hammers. (Actually, they are more like wills or sales contracts.)
Corporations are things — legal contracts — that people use to get certain things done, for themselves.
These days corporations have also become things that are used to obscure or mask what certain people do. A corporation doesn’t “decide” to pollute a river or cheat a customer or hide profits in the Cayman Islands. And Bob in accounting or Alicia in marketing don’t decide to do that, either. But “the corporations” get the blame while really a few people who manage the corporation do things, and they do those things for their own, personal gain.
This is the important thing to understand. People make decisions and personally benefit; corporations do not.
When we cut taxes on corporations we are actually cutting taxes on a few people. And not just people, but very, very rich people.
The “Competitive” Argument
This time around the Republicans are trying to bamboozle everyone by claiming that we “need” to cut taxes on corporations so they will be more “competitive.” (As if our corporations are not already making the highest profits in history.)
Gayle Trotter captures the company line at the Washington Examiner, in Trump’s corporate tax plan will make America competitive again,
Lowering the corporate tax rate from 35 percent to 15 percent will help, not only to keep businesses here, but also bring jobs and innovation back home by reducing wacky incentives for United States companies to migrate offshore in tax-driven “inversion” deals.
This is legislation-by-extortion. This argument has giant corporations threatening to renounce their U.S. citizenship, and harm our country by killing American jobs, etc., unless we give them (the executives who make the decisions — and the threats) more money. This argument also threatens American entrepreneurs who want to start companies here, with its appeal to giant foreign companies to move here and serve those markets instead.
The argument also ignores what really makes a country “competitive.” That is the infrastructure, education, scientific research, court system and other things well-funded governments do to fertilize the soil from which companies can grow and prosper. Cutting corporate taxes cuts a government’s ability to nurture that soil — for the sake of a short term gain for a few executives who are making these extortion threats.
Switzerland Got Wise to the Con
A week ago Switzerland had a vote on lowering their corporate tax rate, “to attract businesses,” but the voters got wise to the con, with 60 percent of them voting to reject the extortion argument, as AFP reports,
The proposal would have leveled the tax rate for domestic and foreign firms while creating new deductions for innovation as well as research and development, tailored to attract global companies…
The left-wing Socialist Party (PS) called the government’s plan a “scam” that would have forced ordinary taxpayers to fill inevitable revenue shortfalls.
The referendum had “shown the red card to arrogance,” the party said in a statement, claiming the days of giving sweetheart deals to powerful corporations were “no longer tolerated.”
“Dollars Go to Support the Communities That Help to Make Their Businesses Thrive”
In April, 2015, the Main Street Alliance pushed back against these extortion threats, issuing a statement that SMALL BUSINESS OWNERS JOIN OTHERS ACROSS THE COUNTRY, PLEDGE TO REMAIN AMERICAN BUSINESSES,
With Tax Season in full swing, business owners and working families across the country are standing together, proud to live, work, and support the United States and their local communities. Small business owners across the country know that their tax dollars go to support the communities that help to make their businesses thrive. Investments in our schools, public infrastructure, safety, and much more depend on everyone paying their fair share of taxes.
Good for them. And good for people like the voters in Switzerland who did not fall for this “competitiveness” bamboozlement.
This post originally appeared at Campaign for America’s Future (CAF) at their OurFuture site. I am a Fellow with CAF, a project of People’s Action. Sign up here for the OurFuture daily summary and/or for People’s Action’s Progressive Breakfast.
The business-oriented media are loudly proclaiming that president-“elect” Donald Trump’s proposed tax cuts for the rich and corporations will “boost” the economy.
● Fox Business Video: Why Trump’s tax cuts will boost the world economy
● Investors Business Daily: Here’s How Much Trump Tax Cuts Could Boost The Stock Market
The word filters down to the local media: (The exact word: “boost”…)
● Indianapolis Business Journal: Trump’s tax-cutting plan will boost economy
Really? Is THAT what happens when taxes are cut for the wealthy and their corporations?
Presidents Reagan and both Bushes cut taxes for the rich and their corporations, promising that the “benefits” would “trickle down’ to the rest of us. Kansas gave huge tax cuts to corporations and the wealthy to “boost” investment and jobs. For decades Puerto Rico offered tax breaks “attract businesses.” How’d that work out for them — and us?
Sam Brownback took office as Governor of Kansas in 2011. With a Republican legislature Kansas conducted a “real live experiment” and dramatically cut tax rates on the wealthy and corporations. They said it would boost investment and create jobs. They said the “boost” in the economy would actually increase tax revenues.
How did that work out? Not so great. The LA Times reports, Hard times for Kansas and its schools as economic ‘experiment’ creates gaping budget hole,
In February 2015, three years into the supply-side economics experiment that would upend a once steady Midwestern economy, a hole appeared in Kansas’ finances.
To fill it, Gov. Sam Brownback took $45 million in public education funding. By April of this year, with the hole at $290 million, Brownback took highway money to plug it. A month later, state money for Medicaid coverage went into the hole, but the gap continued to grow.
Today, the state’s budget hole is $345 million and threatens the foundation of this state, which was supposed to be the setting for a grand economic expansion but now more closely resembles a battleground, with accusations and lawsuits flying over how to get the state’s finances in order.
The Center for Budget and Policy Priorities (CBPP) took a long look at the Kansas experiment and what happened, and reported in Kansas’ Tax Cut Experience Refutes Economic Growth Predictions of Trump Tax Advisors,
In fact, the tax cut failed to boost the Kansas economy:
● Since it took effect in January 2013, total employment in Kansas has risen only 2.6 percent, compared to 6.5 percent nationally. Private sector employment in Kansas has risen 3.5 percent, compared to 7.6 percent nationally.
● The state’s economy has grown less than half as fast as the national economy; Kansas’ gross domestic product (GDP) grew 4.8 percent from the end of 2012 through the first quarter of 2016, while national GDP rose 11.9 percent.
● Kansas’ share of newly opened business establishments in the United States has actually declined slightly rather than increased.
But wait, there’s more. According to CBPP, “Moreover, the Kansas tax cut package has had a deleterious impact on the state’s financial stability and the provision of critical services.” Tax revenues did not grow as promised, they continue to decline as the state’s economy collapses. The resulting reduction in infrastructure funding is hitting roads, etc., The state’s bond rating has been downgraded — twice — so the state has to pay higher interest rates. Economic growth and job growth is slower than much of the rest of the country.
More bluntly, Mother Jones, Trickle-Down Economics Has Ruined the Kansas Economy.
Puerto Rico, Oops
Puerto Rico offered “competitive tax rates” to corporations, in an effort to boost their economy. How did that turn out?
A Reuters Special Report from December, How dependence on tax breaks corroded Puerto Rico’s economy,
In trying to be attractive to U.S. firms, Puerto Rico instead
The industrialization push, dubbed Operation Bootstrap, rested on the premise that manufacturers lured by tax breaks would spur the development of a local economy because they would need local suppliers. The federal government supported the effort, viewing Puerto Rico as a vital capitalist outpost in the Caribbean.became indentured to them, pledging tax breaks and cheap labor for ultimately transient economic benefits.
… It turned out that the manufacturers were generally locked into global supply chains, and so they had limited impact on local business creation.
… Today, the U.S. territory has nearly $70 billion in debt, an unemployment rate 2.5 times the U.S. average, a 45 percent poverty rate, nearly insolvent pension systems and a chronically underfunded Medicaid insurance program for the poor.
The economic nosedive started in 2006, at the end of a 10-year phase-out by U.S. congress of tax breaks that had brought manufacturers to the island. Plant closures and job losses followed. Puerto Rico’s commonwealth government made things worse by taking on years of debt to replace the lost revenue.
Tax cuts didn’t work out so well for Puerto Rico, either.
Studies: Tax Cuts Do Not “Boost” The Economy
Republicans always argue that tax cuts for the rich and their corporations will “boost” the economy because “taxes take money out of the economy” and the promise that by cutting taxes at the top the “job creators” have more of an “incentive” to work “harder.” They even argue that cutting taxes actually increases tax revenue as a result of that “boost” in the economy.
So what’s the record?
In September 2012 the Congressional Research Service published a report that looked at 65 years of tax cuts and the economy, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945. From that report,
Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.
What all those words say is as tax cuts took effect the economy slowed and longer term it slowed more. They didn’t conclude this was causal, but clearly tax cuts didn’t “boost” growth. The kicker: tax cuts were associated with wealth concentrating at the top.
So no, tax cuts didn’t “boost” growth at all and possibly cut growth while making income inequality worse.
David Leonhardt in the New York Times, also September 2012, Do Tax Cuts Lead to Economic Growth?
The defining economic policy of the last decade, of course, was the Bush tax cuts. President George W. Bush and Congress, including Mr. Ryan, passed a large tax cut in 2001, sped up its implementation in 2003 and predicted that prosperity would follow.
The economic growth that actually followed — indeed, the whole history of the last 20 years — offers one of the most serious challenges to modern conservatism. Bill Clinton and the elder George Bush both raised taxes in the early 1990s, and conservatives predicted disaster. Instead, the economy boomed, and incomes grew at their fastest pace since the 1960s. Then came the younger Mr. Bush, the tax cuts, the disappointing expansion and the worst downturn since the Depression.
From my December 2010 post, Do Tax Cuts Help The Economy,
It is obvious that the Reagan and Bush tax cuts for the wealthy have hurt us in many ways.
- They hurt the economy. (See charts above) (also, just look around you.)
- They caused massive debt.
- They hurt government’s ability to do its job.
- They caused extreme concentration of wealth.
- They changed us from a democracy to a plutocracy: government of, by and for the wealthy.
- They kept us from maintaining and modernizing our infrastructure.
But this was the plan all along, wasn’t it?
The April, 2011 post, Conservative Tax Tricks – Did Tax Cuts Grow The Economy? is full of charts and figures, including this:
From my post Tax Cuts Are Theft,
A beneficial cycle: We invest in infrastructure and public structures that create the conditions for enterprise to form and prosper. We prepare the ground for business to thrive. When enterprise prospers we share the bounty, with good wages and benefits for the people who work in the businesses and taxes that provide for the general welfare and for reinvestment in the infrastructure and public structures that keep the system going.
Since the Reagan Revolution with its tax cuts for the rich, its anti-government policies, and its deregulation of the big corporations our democracy is increasingly defunded (and that was the plan), infrastructure is crumbling, our schools are falling behind, factories and supply chains are being dismantled, those still at work are working longer hours for fewer benefits and falling wages, our pensions are gone, wealth and income are increasingly concentrating at the very top, our country is declining.
Tax Cuts Hurt We the People
The record proves that tax cuts don’t “boost” the economy, they just make the rich even richer. So why do we keep getting told they will?
Tax cuts make the rich richer and hurt the rest of us because they force budget cuts in things that make our lives better and actually do grow the economy, like infrastructure and education. A prosperous economy with good businesses and good jobs and good wages result from good education and the business conditions created by good infrastructure, research, etc. These things take investment and regulation and those are the result of taxes and strong government.
If you cut taxes and wages to offer a “competitive environment” what happens is companies move from somewhere else, government there collects less in taxes, government in the new location collects less in taxes, the workers there get laid off and the new workers are always paid less — sometimes much less. If you do the math, you see that in the larger picture of an economy — one that includes the places the companies moved from and moved to — overall wages drop so the public in general is poorer, government is weakened so it can’t help and invest. In the end, the owners of the companies have a larger share of the pie.
Tax cuts are a scam to weaken democracy and our government’s ability to fight corporate power and concentrated wealth.
This post originally appeared at Campaign for America’s Future (CAF) at their OurFuture site. I am a Fellow with CAF, a project of People’s Action. Sign up here for the OurFuture daily summary and/or for People’s Action’s Progressive Breakfast.
One of the biggest fights coming up in the newly elected Congress next year will be “corporate tax reform.”
If you follow policy news you’ve been hearing that Congress wants to “reform” corporate taxes (again). When you hear talk of “reform” from our corporate-captured Congress it means you need to run as fast as you can — and organize. The way they use the word, it always means give them more and We, the People get less.
Senator Schumer Talking About Massive Break On Taxes Corporations Already Owe
Senator Chuck Schumer (D-Wall Street) might be Senate Majority Leader after the election. In a Tuesday CNBC interview he said he is hoping to work with Republican House Speaker Paul “Gut the Government” Ryan on “some kind of international tax reform tied to a large infrastructure program.” In the interview Schumer said:
If you can get overseas money to come back here, even if it’s at a lower rate than the 35 it now comes back at, and you can use that money for a major constructive purpose such as infrastructure, if you did an infrastructure bank, for instance, you could get $100 billion in equity in the bank and get a trillion dollars of infrastructure.
When Schumer says “at a lower rate” he is talking about a “tax holiday” allowing corporations to pay less than the 35% tax rate they owe (minus deductions for taxes already paid overseas) on some $2.5 trillion of profits they have stashed in “overseas” tax havens. These corporations owe around $720 billion or so on those profits. So rewarding them for tax dodging with a lower tax rate means handing them up to hundreds of billions of dollars that the country needs for schools, health care and yes, infrastructure repair.
These tax-dodging, multinational corporations used schemes and tax havens to dodge paying taxes they owe. Meanwhile other corporations — usually smaller, domestic companies — paid their taxes. This gave the multinational corporations that used schemes and tax havens to dodge paying their taxes an advantage over the honest, domestic companies that did pay their taxes.
So why should Congress reward tax-dodging, multinational corporations by letting them keep some of the taxes they dodged, thereby punishing the domestic corporations that did the right thing for the country? See if you can guess why. (Hint: the tax-dodging corporations have “captured” Congress using a portion of that money.)
The corporations are also trying to sell “tax reform.” This “reform” is really just another huge corporate tax cut that is explained as a “revenue neutral” deal to “cut corporate tax loopholes” and use the resulting revenue to cut the corporate tax rate. The term “revenue neutral” means the tax revenue coming to the government stays the same. “Revenue neutral” sounds like a good deal but in reality it’s just a trick. It means taxes go up for some companies but way, way down for others. Guess which companies lose out. (Hint: it won’t be the giant multinational corporations that have captured Congress.)
The top corporate tax rate used to be 52 percent. Under Reagan it was 46 percent. Then Congress “reformed” taxes and dropped the rate to just 35 percent. Corporations used to shoulder 32 percent of the total tax burden. It has fallen to only 10 percent of the burden. That is a drop of two-thirds. See if you can guess who pays that two-thirds difference. (Hint: it isn’t corporations or their wealthy owners. It is cuts to schools, infrastructure, health care and all the things that used to make our lives better. This is one part of the economic squeeze everyone feels.)
On top of that they are also trying to sell a scheme that lets them off the hook for profits made outside of the country. See if you can guess how fast every corporation moves its profit centers and production out of the country if that passes. (Hint: every single corporation will move every job, factory, profit center etc out of the country if that passes.)
What Budget Deficit And Debt?
Our country has a budget deficit and a large debt caused by tax cuts and wars. The current hysteria over deficits is driven by corporate-and-billionaire-funded PR “think tanks” that pump out propaganda and hysteria 24/7/4/12. Can you guess what 24/7/4/12 means? (Hint: 24 hours, 7 days, 4 weeks, 12 months of the year.)
With a budget deficit and a large debt the fact is that a “revenue neutral” tax reform for corporations who have already had their tax rates cut and cut and cut is the very last thing the country needs to do. What we need to do instead is close that loophole that lets giant, multinational corporations hide $2.5 trillion in profits in “overseas” tax shelters, and make them pay the $720 billion or so of taxes they owe now, plus the $90-100 billion or so of taxes they will dodge every year after. Period.
Revenue neutral, Schumerutral. Just make these giant, tax-dodging, multinational corporations pay what they owe. Don’t reward them for tax-dodging. And restore the 52% corporate tax rate instead of cutting it even further.
Much of Congress is captured by corporate money. So literally nothing gets through Congress if it interferes with the corporate/1% -boosting agenda. Many in the federal regulatory agencies are captured by promises of corporate payoffs after leaving government, so these agencies do almost nothing to crack down on corporate abuses of We the People.
At the state level, the corrupting power of corporate and billionaire money can have an even greater effect. For example, after the Republican-dominated Supreme Court opened up the floodgates of corporate money with the Citizens United decision, that money helped Republicans take over statehouse after statehouse.
In these states, taxes on corporations and the wealthy were cut, and schools, roads, healthcare and the rest of the things government does to make the lives of We the People better were gutted. In other states, corporate money blocks needed taxation and essential government programs.
With corporate and billionaire money determining the outcome of policy decisions at the national and state levels, people in the cities and states are using ballot initiatives to try locally to take back power. Around the country we’ve seen successful efforts to pass measures such as minimum wage increases, fracking bans and anti-tobacco initiatives.
Oregon’s Measure 97
Oregon’s Measure 97 ballot initiative is one example of We the People trying to take back control of government from the 1% and their powerful corporations.
Oregonians will vote soon on taxing larger corporations to protect programs that help Oregon’s people instead of just the wealthy and their corporations. Specifically, Measure 97 would increase the minimum tax for large and out-of-state corporations with more than $25 million in annual Oregon sales.
This is not a tax increase, this is requiring corporations that might otherwise dodge taxes to pay a minimum tax to generate money to cover the state’s budget needs.
The NY Times summed up the effect Measure 97 would have in September’s report, Measure 97, Seeking to Raise Corporate Taxes, Splits Oregon Voters,
If approved by the voters here in November, Measure 97 would create the biggest tide of new tax revenue in any state in the nation this year as a percentage of the budget, economists said — and one of the biggest anywhere in recent history. Oregon’s general fund would grow by almost a third, or about $3 billion a year, through a 2.5 percent tax on corporate gross receipts. The initiative language says the money would augment state spending on education, health care and senior services, but does not bind the Legislature to a specific plan.
Make large corporations — many of which take the profits out of the state — pay at least minimal taxes.
With that money Oregon gets to maintain or increase programs like:
● special education,
● hire 7,500 teachers,
● provide PE & Arts classes and make sure there is a nurse at every school,
● add 2 weeks to the school year,
● fund a statewide, modern public health system
● maintain Oregon’s Cover All Kids, a Basic Health Program,
● expand health insurance subsidies for working families
● provide mental health and substance abuse care,
● providing in-home assistance to 15,180 more seniors, and
● fully fund Adult Abuse Prevention to investigate every case of possible abuse or neglect.
That’s good trade-off, which brings out lots of supporters. The Vote Yes On 97 website says that, “6,000 volunteers, over 1,250 endorsements from community organizations, economists, parents and teachers, local leaders, and over 435 Oregon businesses.” Click here to see the list of businesses, educators, community groups, labor unions, elected officials, and community leaders
Darlene Huntress, associate director of Unite Oregon, says of Measure 97,
“This is about corporations investing in communities. With the budget shortfall that we have this is about taxing corporations, many of which aren’t paying taxes now. what this could do for education, health care and senior services is a real gamechanger.
On top of that Unite Oregon works with communities of color, immigrants and refugees. Many of these corporations are the same corporations that have invested in private prisons and detention centers. We’d prefer this money was invested in our communities instead of invested in separating families.”
The Times’ report also lays out who is for and against Measure 97, (hint: the usual suspects)
Labor unions, led by teachers, are leading the fight for passage, arguing that decades of erosion in education funding are the cause of the state’s dismal high school graduation rate, among the lowest in the nation. Opponents have raised about $8 million — four times as much as supporters — through contributions from large companies like Amazon, General Motors and the grocery chain Kroger/Fred Meyer.
Corporations are doing what they always do: pouring millions into the campaign, and extorting citizens by threatening to raise prices, cut jobs, or just leave the state.
CAN Corporation Raise Prices To Cover Taxes?
A short examination of just one of these arguments — can corporations really raise prices to “pass on taxes to customers?” — shows that the corporate arguments against taxation have little credibility.
● Companies try to price ‘optimally,” meaning they already charge as much as they can. If they could raise prices, they already would have.
● Taxes are determined long after a sale takes place and are not a cost to be added into the pricing of a product. There is no way to know what the taxes might be later.
● Companies have competitors. If “Company A” raised prices, competing “Company B” would get more business, which would mean that “Company A” loses sales, which would mean they have lower profits and therefore lower taxes, which would mean they would have to lower prices…
● Suppose a company could raise its prices regardless of competition. That would mean the profits would be even greater, which means the taxes on profits would be greater, which would mean they have to raise prices even more. But that would mean profits would be even greater, which means the taxes on profits would be greater, which would mean they have to raise prices even more. But that would mean profits would be even greater …
People in corporations know they can’t raise prices to “pass on taxes to customers,” yet they are making the argument anyway. Other corporate arguments against raising taxes have similarly low credibility.
If you live in Oregon, take a look at Measure 97. If you don’t live in Oregon, learn from Oregon’s amazing activists and organizers and organizations like the coalition behind Measure 97. You can how power in your state to take on corporate power and restore government of, by and FOR the people.
“Tax cuts skewed towards the wealthy elite starve our communities of much-needed resources while further tilting the scales towards large corporations and the rich.”
– Stephen Rouzer at Main Street Alliance
If you cut taxes for the rich and giant corporations, what happens to the rest of us? Tax cuts mean budget cuts, so what suffers is education, infrastructure and all kinds of things government does to make our lives better and our local businesses stronger.
Republicans argue that pushing wealth and income to the top few has a “trickle down” effect. They say wealthy people (like Paris Hilton) are “makers” who “create jobs” and therefore deserve to have heaps of money pushed their way for their benefit. They say that government spending on things that make the lives of We the People better really just makes us into “takers.”
But in reality, policies that push more and more of our country’s resources into the largest hands put our smaller hands at even more of a disadvantage. The giant corporations have huge advantages over small, local businesses just due to their size; huge tax breaks on top of their size-given advantages just make it that much harder for smaller businesses to compete. So the “WalMart business model” of undercutting and bankrupting a community’s small businesses and draining entire regions of wealth gains even more power. After decades of these “trickle down” policies, this is also known as “look around you.”
Trump’s Tax Plan Means Fewer Customers With Money To Spend At Local Businesses
The Main Street Alliance is a “is a national network of small business coalitions” that “works to provide small businesses a voice on the most pressing public policy issues across the nation.” (Donate here.)
A Main Street Alliance blog post by Stephen Rouzer, “Donald Trump’s Revised Tax Plan Won’t Work for Main Street,” begins,
The latest version of Donald Trump’s ever-changing tax plan is facing scrutiny from the Center on Budget and Policy Priorities and Main Street Alliance leaders. The plan, one that features across the board tax cuts, disproportionately benefits the highest-income earners, those grossing more than $1 million annually.
This description of Trump’s plans as a huge benefit to the wealthiest is based on a Center on Budget and Policy Priorities (CBPP) post explaining a Tax Policy Center (TPC) analysis of Donald Trump’s tax proposals. The CBPP post, “Revised Trump Tax Plan Heavily Tilted Toward Wealthiest, Tax Policy Center Analysis Shows” explains how the analysis shows that Trump’s tax cut raise the after-tax income of the already-wealthy by another 14% or more, while hardly benefiting the rest of us – or even cutting the take-home incomes of the poorest.
This would seriously affect small, local businesses. Rouzer explains how passing so much to the top few while starving the rest of us means local businesses have fewer customers with money to spend:
A 2015 report released by the Main Street Alliance, “Voices of Main Street,” surveyed over 1000 small business owners and found that 52 percent of respondents cited “more customers” as the most important key to increasing small business success. Doubling the number of respondents that said “lower taxes” and more than quadrupling the number that responded “fewer regulations.”
Tax cuts skewed towards the wealthy elite starve our communities of much-needed resources while further tilting the scales towards large corporations and the rich.
Rouzer concludes with some great comments from business owners:
“To level the playing field for Main Street businesses our tax code must no longer skew in favor of large corporations and their shareholders,” said Deborah Field, the owner of Paperjam Press in Portland, Oregon, and a former corporate tax accountant. “Without holding multinational corporations accountable to pay what they owe and first providing relief to low and middle-income earners we shouldn’t begin to consider tax cuts for the rich.”
“The vast majority of small business owners don’t support a tax system that augments their piece of the pie by cheating their fellow citizens out of theirs. When we contribute our fair share of taxes, those dollars get reinvested in our local communities,” said David Borris, the owner of Hel’s Kitchen Catering in Chicago and Main Street Alliance Executive Committee member. “Local communities that support tens of millions of small businesses nationally.”
Amanda Ballantyne, national director of the Main Street Alliance, says that “Mr. Trump’s tax breaks would deprive the government of badly needed funds for investments in infrastructure, transportation, education, and social services. The resulting budget cuts hinder the types of investments that drive local economies and put small businesses in a better position to succeed.”
The kind of tax policy that small businesses need is one that supports their customer base and their communities. “In that regard, Trump’s plan falls flat,” says Ballantyne.
Donald Trump wants to dramatically cut taxes for the already-wealthy and their giant corporations. This would starve local communities of resources like teachers and infrastructure, while stacking the deck further against smaller, local businesses.
“Multinational corporations’ use of tax havens allows them to avoid an estimated $100 billion in federal income taxes each year,” says a new report just released by Citizens for Tax Justice (CTJ), Institute on Taxation and Economic Policy (ITEP) and U.S. Public Interest Research Group Education Fund (U.S. PIRG).
That report, “Offshore Shell Games 2016,” explains how “U.S.-based multinational corporations are allowed to play by a different set of rules” when it comes to paying taxes.
Congress – for obviou$ rea$on$ – refuses to stop this “deferral” loophole. And then these same companies fund “think tanks” and other propaganda mills that tell us we have a huge budget “deficit” and “debt” problem and therefore need to cut spending on things that make people’s lives better.
From the report’s executive summary:
Most of America’s largest corporations maintain subsidiaries in offshore tax havens. At least 358 companies, nearly 72 percent of the Fortune 500, operate subsidiaries in tax haven jurisdictions as of the end of 2014.
-All told, these 358 companies maintain at least 7,622 tax haven subsidiaries.
-The 30 companies with the most money officially booked offshore for tax purposes collectively operate 1,225 tax haven subsidiaries.
Some of the key findings from the report:
● Fortune 500 companies now hold nearly $2.5 trillion in earnings offshore and we estimate that they are avoiding $718 billion in taxes on these earnings.
● More than 73 percent of Fortune 500 companies maintain at least one subsidiary in a tax haven.
● Apple has booked $215 billion offshore on which it owes $65.4 billion in taxes.
The solution is for Congress to end the “deferral” loophole and make these companies just pay the taxes they owe.
Corporations are more and more in the habit of telling governments that they are the boss of them. If corporations get their way, “trade” agreements like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) will formalize their dominance. But not quite yet.
The European Union (EU) just told Apple that it is the boss of them, and not the other way around. The EU has ruled that Apple’s tax-avoidance scheme with Ireland’s government is illegal, and Apple owes Ireland $14.5 billion — plus interest. The EU decided that Ireland’s tax deal with Apple, based on Apple demanding a tax break to “bring jobs” to Ireland instead of somewhere else, constitutes “state aid” to the company. The EU pointed out that other, smaller companies are hurt when giant corporations like Apple get special tax deals.
In other words, the EU has ruled that it is illegal for an EU government to give in to corporate extortion, because giving in and paying the extorting company a tax break ransom means the government is providing “state aid.”
In other other words, where last week Apple’s CEO told the US government that the giant corporations are the boss of government, this week the EU told Apple that, actually, government is still the boss of the giant corporations.
Are We the People the boss of giant multinational corporations, or are they the boss of us?
Imagine, if you will, going to the IRS and saying, “I don’t think the tax rate is fair so I’m not going to pay it.” Regular Americans can’t do that. But Apple just did.
Apple’s CEO Tim Cook was interviewed by The Washington Post early this month. He was asked about the vast sums of profits that Apple has shifted into overseas tax havens thanks to a loophole in US tax law that lets them “defer” paying taxes on those profits as long as the money technically stays outside the country. Cook said (emphasis added, for emphasis):
And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it.
What would happen to any regular American if they did what Cook did, and said they they aren’t going to pay taxes because they don’t think the tax rate is “fair”? (Hint: Jail. And maybe 2 or 3 years added to the sentence for the contempt of saying, “There’s no debate about it.”)