So, desperate Republicans have turned to their old standby, that last refuge of scoundrels: fearmongering about taxes.
Biden’s proposal is paid for in part through a modest increase in corporate taxes. Whatever else might end up in the bill, Republicans say, opposition to this provision is their “nonnegotiable red line.”
Unfortunately for Republicans, corporate tax increases also turn out to be phenomenally popular; for many years, Americans have believed that big companies haven’t been paying their “fair share.” Of course, just because something polls well doesn’t necessarily mean it’s a good idea. So Republicans are trying to argue this narrative to the public: The 2017 GOP tax overhaul that lowered the corporate rate from 35 percent to 21 percent has been an extraordinary success, leading to gangbusters economic growth, hiring and strong government revenue; therefore, they claim, partly reversing this policy by bringing the corporate rate to 28 percent, as Biden proposes, would be an economic death sentence.
This argument has a few problems. Among them: Even one of the architects of then-President Donald Trump’s tax cuts, former National Economic Council director Gary Cohn, acknowledged it’s nonsense.
“On the corporate tax rate, I’m actually okay at 28 percent,” he said in an interview last year when asked about then-candidate Biden’s proposal. “The level we got to in our tax plan on the corporate side was actually a bit lower than I thought we needed to go.” He said the “corporate community” would likely “be fine” with that level too, and that business groups told the Trump administration as much during private discussions in 2017. (The corporate sector’s public posture differs now.)
There are some interesting echoes here of the 1980s. When President Ronald Reagan signed a massive tax cut into law in 1981, his own Office of Management and Budget director publicly expressed misgivings about its size and implications for the deficit. Over the next few years, in response to the ballooning deficits his staffers had correctly predicted, Reagan signed into law multiple major tax increases. That partial claw-back is a fact today’s Republicans conveniently forget.
But the bigger problem for Republicans today is that the track record of the Trump tax cuts has been a bust. That’s according to standards set by the law’s own advocates.
Back in 2017, the law’s boosters offered a very specific explanation for how the corporate tax cuts would provide “rocket fuel” to the U.S. economy. Reducing taxes on corporate profits would attract more capital, they argued, which would in turn increase business investment, which would lead to growth in economic activity, hiring and wages. Through additional economic growth, this entire law would “pay for itself.”
The law had no appreciable effect on business investment, as a 2019 International Monetary Fund analysis found. Growth in gross domestic product was also not terribly different in the post-tax-cut (and pre-covid) years than in the several years prior. Tax revenue was also much lower than had been forecast to be the case without the cuts, meaning that no, the law did not pay for itself.
It’s true the job market was strong in the period after the tax cuts passed and before covid-19 broke out, and that unemployment was very low, but unemployment had already been falling for eight years before the Trump tax cuts. That existing trend merely continued.
And, again, the specific “capital deepening” mechanism by which the law was supposed to create an economic bonanza never happened. Those of us who had been skeptical of the rosy predictions Republicans made in 2017 pointed out that whatever might be holding back business investment, it didn’t seem to be a lack of access to capital; at the time, companies were already sitting on mountains of cash they couldn’t find productive investments for. The tax cuts seemed more likely, instead, to result in a windfall for shareholders. That forecast did materialize, in the form of a stock-buyback boom.
Given this track record, Republican warnings about the economic apocalypse that would ensue from a reasonable tax increase are not terribly convincing. But since tax cuts are the only thing Republicans still reliably stand for, it’s hard to blame them for trying.