Insightful article on why corporate welfare isn’t the answer to creating jobs. The abundance of corporate welfare is an issue that real conservatives should resonate with — since such crony capitalism is against a fair free enterprise system.
The recent deal to keep some 800 workers employed at a Carrier plant in Indiana rather than see those jobs shipped to Mexico proved great news for the workers and a public relations bonanza for President-elect Donald J. Trump.
What it didn’t prove even though the incoming president used the occasion to promote his proposal for a huge tax giveaway to corporations is that cutting corporate taxes will save or create many American jobs. It won’t.
Companies like United Technologies are delighted to receive handouts like Mr. Trump’s proposed tax giveaway that independent analysts say will cost about $6.2 trillion in lost federal revenues over a decade, and which mostly benefits large corporations and the wealthy. But lowering corporate taxes won’t prompt firms to create American jobs. Instead, we need to close a major tax loophole that actually creates an incentive for multinationals to shift jobs offshore, even as it substantially lowers taxes for them.
That loophole, known as deferral, lets corporations avoid paying any United States taxes on their offshore profits until they are brought back here. That’s why, according to a recent survey by tax researchers, Fortune 500 companies are holding nearly $2.5 trillion in profits that are booked offshore, mostly in tax havens, on which no United States taxes have been paid.
In United Technologies’ case, as with many other American multinationals, cutting federal taxes wouldn’t affect their investment and employment decisions because they already pay very little. Over a 15-year period, from the beginning of 2000 through the end of 2014, United Technologies paid a 10.3 percent effective federal tax rate. That’s lower than what many working-class families pay.
And it’s not unusual. A 2014 survey by the Government Accountability Office found that profitable American firms were paying, on average, less than half the statutory 35 percent rate. Contrary to the often made claim that the American corporate tax rate is uncompetitively high, that effective rate is below that of most of our international competitors.
One reason United Technologies paid such a low rate is deferral. The company has an estimated $29 billion in profits stashed offshore, on which it has paid no federal taxes. Much of that money is most likely spread among subsidiaries in 31 tax havens.
Just a handful of American mega-corporations, including United Technologies, are responsible for the lion’s share of that $2.5 trillion in untaxed profits held offshore. If that money were repatriated tomorrow, researchers calculate that these companies would owe more than $700 billion in taxation. No wonder they’re demanding a huge break on that potential liability.
President-elect Trump wants to oblige them by cutting the tax rate on that offshore pile of cash from 35 percent to just 10 percent. That rate would cut their tax bill to just $150 billion, handing these corporations an unearned gift of more than $550 billion.
There’s no indication that much of that money would create American jobs. When the United States granted a partial tax holiday on offshore profits in 2004, a congressional report noted that some companies used more than 90 percent of the repatriated cash to enrich shareholders, generally through stock buybacks. Corporations that brought home the most cash, in fact, cut jobs.
Mr. Trump also wants to lower the regular corporate tax rate from 35 percent to just 15 percent, losing nearly $2.4 trillion over 10 years. But the Congressional Research Service found that cutting the corporate tax rate from 35 percent to 25 percent would increase economic output and wages by a minuscule amount: less than 0.2 percent. That’s because it does not put the money into the hands of working families who will spend it.
Corporate tax cuts do not create a great many jobs. Another study found that every dollar reduction in corporate taxes adds only 32 cents to the economy. The same dollar spent on infrastructure generates $1.44 of economic activity.
America’s corporate tax rate is not discouraging foreign corporations and individuals from investing here. Their investments in the United States for last year alone reached $348 billion, a record high.
The corporate clamor for tax cuts has nothing to do with job creation. It’s about lining the pockets of corporate executives and wealthy shareholders through ever-higher dividends and ever-bigger stock buybacks. It would be an immense mistake if Mr. Trump’s modest victory over Carrier’s offshoring led to a major giveaway of corporate taxes.