Having failed in their attempt to strip millions of health insurance by repealing Obamacare, President Trump and the Republican Congress are moving to their biggest priority: tax cuts for corporations and the rich. The plan is still being written, but Trump has already begun his push for it. And every part of the administration’s tax pitch is divorced from reality (a gentle way of saying it is a lie and a fraud).
The stated rationale for cutting corporate taxes, for example, is laughable. Republicans rail about our corporations paying the highest tax rates in the world. If the corporations have more cash, they assert, they will invest and create jobs. Trump adds his twist that lower taxes will get corporations to stop moving jobs abroad and start building things in the United States.
This is nonsense. U.S. corporations don't pay the highest rates in the world. While the nominal top rate is 35 percent, the Government Accountability Office found that profitable large corporations paid on average an effective tax rate of 14 percent from 2008 to 2012. The tax code is rigged to ensure that result. Revenue from corporate taxes have plummeted from about 3.7 percent of gross domestic product in the late 1960s to an average of 1.5 percent in recent years.
Corporations aren't short of cash, nor will they use the tax breaks for new investments. Corporate profits hit new highs last year, and the S&P 500 corporations are devoting a record percentage of their earnings to buy back stocks, pay dividends and buy up competitors. They are boosting stock prices — and chief executives' bonuses — not long-term growth or job creation.
Nor, contrary to Trump, are corporations shipping jobs abroad because of U.S. tax burden. They are moving abroad to take advantage of cheap labor and weak environmental and consumer protections that make production cheaper. Many use transfer pricing and a range of accounting tricks to dodge taxes by reporting profits abroad. Trump argues we should allow them to bring the money home at a very low rate, but the money is already available for investments at home. If the companies get the low rate, their tax scam will have worked. They'll use the money — as they did the last time the government tried to allow repatriation — primarily to buy back stock and boost dividends, pumping up executive bonuses. And then even more will rush to repeat the scam in the future.
To test the Republican argument that lower tax rates will create jobs, the Institute for Policy Studies looked at the job record of profitable companies that paid a tax rate of 20 percent or less from 2008 through 2015. Those businesses actually were net losers of jobs.
Even Trump’s stated goal — tax reform that is revenue neutral — is a put-on. Republicans are interested in lowering tax rates on corporations and the rich; they are far less interested in tax reforms that will close loopholes to pay for the lower rates. This isn’t a strategy for tax reform; it’s a full-employment program for corporate lobbyists. Every loophole has a special interest mobilizing to defend it. Every tax dodge has a deep pocket to hire lawyers to justify it. Republican candidates may benefit from the bidding war that ensues, but the public surely will not.
Even the Republican bill-making process is perverse. Trump says he wants Democratic support, but there are no discussions with Democrats toward drafting a bipartisan bill. Democrats will be invited to sign on or shut up. The plan is to pass the bill as part of a budget reconciliation process that needs only Republican votes to pass.
This is the epitome of modern conservative governance. A perverse goal. A perilous process. Trump and Republicans want to slash government spending and reduce government capacity. By wasting weeks in trying to achieve something that will do nothing to address the real challenges we face, they will contribute to their real goal — to discredit government as an instrument of national purpose. Except this country is no longer so strong nor the middle class so robust as to afford this self-laceration.
There are sensible tax reforms that could be passed. Raise rates on the rich and use the money to fund a massive rebuilding of America’s infrastructure, starting with accelerating the move to renewable energy. That would create jobs, reduce inequality, invest in research and new technology, help capture a lead in growing global markets and begin to address climate change. Tax income from investments at the same rate as income from work. Require global corporations to pay taxes at the same rates as domestic companies by ending deferral. Tax financial speculation to raise revenue and at least slow the destabilizing financial casino.
These and other common-sense ideas would raise revenue and support badly needed public investments that would create real jobs and growth while not fueling greater inequality. It won’t surprise you that none of them are on the table in the back room where Republicans are struggling to come up with a tax plan.
To paraphrase Ronald Reagan, there may be no words in the English language more scary than “a Republican president and Congress announce it is time for tax reform.”
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