Policy 103 – Corporate Rate

Policy 103

Corporate Rate

One Sentence Argument

Corporate profits have never been higher, and corporate taxes have never been lower – if corporations are doing so well while middle class Americans struggle, those corporations should be required to pay more.

Where We Stand Now

After 2017’s Republican tax bill, the current corporate tax rate is just 21% (barely over half its previous rate of 35%). Republicans in Congress made this change the centerpiece of their new tax code, claiming that it was vitally important to keep American businesses competitive, but the American people aren’t buying it. Even at that higher rate, nearly two-thirds of the American public thought that corporations weren’t paying enough in taxes. They’re right, corporations aren’t paying enough in taxes.

Corporate profits as a percentage of GDP have never been higher in the entire history of the country than in the last 5 years. They’ve been hovering around 9-10% of GDP compared to a historical average of 6.6% since 1950, a difference of over half a trillion dollars per year.

Corporate taxes as a percentage of GDP, on the other hand, are near record lows. In 1952 corporate taxes accounted for 5.9% of GDP, while today that number is just 1%.

So let’s sum this up. Corporations are making more money than ever, nearly 50% more than average over the last 70 years. They’re also paying less taxes on those earnings than ever, with corporate taxes taking up less than a third of what they used to (for more details see this piece in Politifact). And yet somehow we needed to give those corporations another tax cut??

We were already losing out on trillions of dollars worth of tax revenue because of loopholes and tax evasion, but the GOP tax bill added onto that. This most recent reduction of the corporate tax rate is expected to cost the government over $1 trillion over the next decade.

Does Cutting the Corporate Rate Create Jobs? Nope.

There are mountains of evidence showing that lowering the tax rate does NOT create jobs.

Companies just use their savings on stock buybacks and CEO bonuses. We’ve already seen the vast majority of companies benefiting from their corporate tax cut use that money on stock buybacks in order to artificially inflate their stock (which helps shareholders and the CEO, not workers), not on hiring or expanding. In the first year after the tax bill passed, companies spent over $1 trillion on stock buybacks, and an additional $370 billion in the first half of 2019. Some of the largest corporations have actually cut jobs in response to the tax bill. AT&T alone cut 23,000 jobs in the aftermath of the GOP tax bill, despite its assurances it would create jobs.

If you want more concrete data, in 2016 year the Institute for Policy Studies issued a report looking at the 92 publicly held US corporations that both made a profit and paid less than 20% in taxes between 2008 and 2015. The average employment growth rate in that time span for all US private sector companies was 6%. Guess what the employment growth rate was for those 92 tax dodging companies?

Almost negative 1%. The companies that consistently paid the least taxes also consistently hired the least new people. And it makes sense, because corporations hire more people when those people can generate profit, regardless of their tax rate. Whether the corporation gets to keep 65% (under the old law) or 79% (under the new law) that is still a lot better than nothing. Business people do not make decisions based on tax rates.