Riding a tide of tax cuts and rising profits over four decades, the captains of corporate America have shifted $1 trillion each year from the paychecks of middle class Americans into massive payoffs to Wall Street investors and to CEO and executive pay. And now they want you to believe, once again, that cutting corporate taxes will benefit average workers.
Matched against history, that’s a hollow claim bordering on economic fake news. Factually, it flies in the face of the performance over the past 40 years of American business, which has generated what Citibank called the greatest inequality of income in any major nation since 16th century Spain – that is, over the past 500 years.
In 2012, the Congressional Research Service published a report that bluntly debunked the pet conservative notion that lowering tax rates boosts economic growth. “The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth,” the congressional tax report concluded. Instead, it said, lower tax rates fuel economic inequality.
More recently, the rationale for President Donald Trump’s tax-cut plan was shot down by a survey of business leaders who were asked by an international accounting firm how they would use tax savings. Most U.S. multinationals told the survey that they had no intention of investing their windfall gains from tax cuts on company growth, more jobs or higher wages. Only 23 percent said they would do that. The large majority said they would pay out their tax savings to their shareholders in the form of higher dividends and stock buybacks.
Such evidence has not deterred Trump, the pro-business Republican tax-writing committees in Congress and corporate CEOs from continuing to market the myth that there’s a pot of gold for the working middle class at the end of the tax-cut rainbow.
Just last month, the president, who stands to benefit personally from business tax cuts, cast his trickle-down tax plan in populist rhetoric to a crowd of his supporters in Springfield, Mo. “This is our once-in-a-generation opportunity to deliver real tax reform for everyday hard-working Americans,” Trump told Middle America. “Lower taxes on American business means higher wages for American workers.”
AT&T promised more jobs but did mass layoffs
CEOs march in rhetorical step with the president, vowing that lowering the current corporate tax rate from 35 percent to 20 percent will bring a job boom because, as AT&T’s CEO Randall Stephenson put it, “lower taxes drives more investment, drives more jobs, drives greater wages. All this fits together.”
For each $1 billion tax savings, Stephenson told CNBC, his company would create 7,000 well-paid blue-collar jobs. “There are jobs wearing hard hats … to put that capital into the ground or on cell towers,” Stephenson asserted. “There are high-paying, really good jobs with great benefits. The correlation is tight – very, very tight.”
Sounds good. If only it were true. Sarah Anderson of the Institute for Policy Studies, a Washington research think tank, found that from 2008 to 2015, AT&T had already wedged its tax rate way down to 8 percent by taking advantage of tax write-offs and loopholes. But instead of using those low, low taxes to add jobs, AT&T has cut 80,000 American jobs over the past nine years while CEO Stephenson was cashing in $124 million in stock options and grants.
Even with tax rebates, companies have cut jobs
AT&T is fairly typical. Thanks to $1.2 trillion in tax loopholes and deductions every year, most major American companies, especially those with global business, are paying far less than the official 35 percent corporate income tax rate. More than 100 big corporations have had years when they paid no federal taxes at all – zero, according to tax records examined by Citizens for Tax Justice, or CTJ, a progressive think tank.
Based on corporate tax returns for 2008 to 2012, CTJ found 26 companies, including Boeing, General Electric and Verizon, that actually got multibillion dollar tax rebates from the federal government, despite combined pre-tax profits of $170 billion.
Even worse for working Americans, those low, low tax rates did not generate more jobs and higher wages. Just the opposite. The Institute for Policy Studies found 48 major U.S. companies that not only enjoyed tax rates below 20 percent from 2008 to 2015 but, like AT&T, they collectively cut a total of 483,000 jobs.
U.S. companies used to invest in job growth, but no more
These recent cases all fit a historic trend among hundreds of major U.S. corporations documented in detail by economist William Lazonick in Harvard Business Review in 2014. Lazonick’s article, tellingly titled “Profits Without Prosperity,” describes a major cause of America’s slow-growth economy today and suggests why so many economists doubt that corporate tax cuts will spur significant growth.
Lazonick’s jolting disclosure was that American corporate investment in growth has changed dramatically in the past 30 years. In the late 1970s, he found, major American companies used to reinvest about half of their annual profits in expanding their businesses, funding R&D, retraining their workers and paying them more, and paid out the other half of profits to shareholders. But from 2003 to 2012, Lazonick reports, 91 percent of profits of S&P 500 corporations went to Wall Street investors and shareholders and only 9 percent was invested in growth.
“Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back (company) shares for what is effectively stock-price manipulation,” Lazonick concluded.
Where do corporate savings go? Shareholders
That radical shift in corporate policies resulted not only in slower growth but in labor’s declining share of national income and the explosion of America’s now gaping economic inequality. Billionaire investor and social critic Nick Hanauer of Seattle recently put his finger on the key numbers:
“Over the last 40 years, corporate profits as a percentage of GDP have increased from about 6 percent to about 11 percent, while wages as a percentage of GDP have fallen by about the same amount. That represents about a trillion dollars a year that used to go to wages, but now goes to shareholders and executives.”
Anxious to reduce that massive income gap and generate jobs, Barack Obama as president advocated a lower tax rate for more than $2 trillion in corporate profits stashed overseas, provided that U.S. corporations were required by law to invest a large portion of those repatriated profits in job-producing projects to modernize America’s aging transportation network. Obama felt it would take the force of law to make corporations invest in jobs.
But Republicans refused to work with him on that. And so far, there is no evidence that either the Trump administration or congressional Republican leaders are ready to put teeth into their tax reform proposals to force corporate America to live up to its gossamer promises of more jobs and higher wages.
Hedrick Smith is former Washington bureau chief of The New York Times and executive editor of reclaimtheamericandream.org. Email email@example.com.