The Business Roundtable, which represents the chief executives of the largest American companies, has always fancied itself as the business lobby that rises above the grubby pursuit of narrow self-interest, that eschews partisanship and hard-edge ideology, that understands that what is good for America is good for business. Its new motto, “More than Leaders. Leadership,” is meant to reflect that high purpose.
It is also worth noting that no organization has been more responsible for getting tax reform to the top of the congressional agenda than the Business Roundtable. That’s not because its CEO members want to cut tax rates for themselves and their rich friends — actually, they have been clear they don’t favor cuts in individual taxes. Rather, it is because they believe the corporate tax code, with its high statutory rate of 35 percent, its taxation of foreign profits and its endless list of arcane loopholes and preferences, makes their companies less competitive and less profitable and encourages them to move jobs, technology and investment overseas. And they are right about a lot of that.
Now, with recent passage of the tax bill in the House and approval by the Senate’s Finance Committee on the strength of only Republican votes, the Roundtable stands on the verge of getting the corporate tax reform that it has lobbied for for nearly two decades — and, with it, roughly speaking, a $50 billion cut in corporate taxes each year. But their provisions come as part of an unsavory package that would:
• Eventually add more than $200 billion a year to a federal budget deficit that the Roundtable itself has warned is reaching dangerous levels.
• Further expand the current tax giveaway enjoyed by owners of law and accounting firms, real estate partnerships, private investment funds and large family-owned firms that masquerade as “small businesses.”
• Deliver significant income tax cuts to most high-income households while raising taxes for a sizable number of middle- and working-class families and failing to expand the earned income tax credit for the poor, as long advocated by the Roundtable.
• Reduce or eliminate the federal tax on inherited wealth, including billions of dollars in unrealized capital gains that have never been taxed.
• And, most significantly, sabotage Obamacare in a way that will lead to dramatic increases in premiums on health insurance exchanges and add millions of Americans to the rolls of the uninsured.
The question Roundtable and other business leaders must now ask themselves: What price is worth paying to achieve corporate tax reform?
The economic cost will come in the form of runaway federal debt that, at some point, will drive up interest rates to higher levels that will offset any economic growth that results from increased investment in research, product development and new equipment.
Or perhaps, instead, some future Republican Congress decides to pay for this massive tax cut by reducing spending on education, infrastructure, basic research and public health. Investment in such public goods boosts economic growth no less than private investment, so cutting it would also significantly offset the growth-inducing effects of corporate tax reform.
In other words, the Roundtable and other proponents have oversold the economic benefits from corporate tax reform, which Democrats have acknowledged is needed. In the short term, it is more likely that corporations will use their tax cuts to buy back shares and increase dividends than to make productivity-enhancing investments. If there were good investments to be made, companies would have already made them, using the record amounts of profits they are already earning or with money borrowed at today’s record-low rates.
Under the existing tax code, with its tax credit for research and development, accelerated depreciation and full interest deduction, the effective tax on new investment is already at or below zero for most corporations. Additional cuts in taxes on capital will wind up mostly rewarding old investments rather than inducing new ones. The major economic boost from the Republican bills is that new investment is more likely to be made at home rather than abroad.
In the end, any boost to wages and incomes for most households that comes from cutting business taxes is almost sure to be less than promised. Note that most of the rosy scenarios put forward by the Roundtable and the White House talk about “average” incomes, as if the gains from economic growth will be evenly divided. In reality, we know that gains from growth in recent years have been badly skewed to those at the top. If there are any wage gains trickling down to the typical household, they are likely to be in the hundreds, not thousands, of dollars a year.
But the bigger question facing the Roundtable is the political price it will pay for its unqualified support for a tax bill that violates its ethos that what’s good for the country is good for business.
By offering its full-throated endorsement to a tax bill that worsens already troublesome income inequality, robs the Treasury of funds badly needed for public investment, shifts the tax burden from Republican states to Democratic ones and knocks the foundation out from under Obamacare, the Roundtable would be giving a big middle finger to Democrats. Democrats will surely return the favor if and when they return to power in two or four years — an outcome even more likely with passage of this unpopular legislation.
It will further poison the political atmosphere in Washington, polarize voters along partisan lines and strengthen the hand of ideological hard-liners in both parties. Government will become even more dysfunctional, which in the long run will surely be a greater threat to corporate profits and economic growth than the current corporate tax code.
Earlier this year, the chairman and several members of the Roundtable, at considerable political risk, resigned from a pair of White House advisory boards in the wake of President Trump’s comments about racial violence in Charlottesville. By doing so, they reinforced social and political norms that are essential to democratic capitalism and were rightly praised for it.
This tax legislation represents a similar threat and a similar opportunity. By withdrawing their support until significant changes are made to provisions unrelated to the corporate tax, corporate leaders are in a unique position to help the economy, help the country and help themselves.
More than leaders. Leadership.