- Data does not show that corporate tax cuts encourage investments, jobs or growth.
- Corporate tax cuts have only increased inequality and executive pay, not economic competitiveness.
- Higher corporate taxes will drive competitiveness and benefit all Americans.
- Morris Pearl is the Chair of the Patriotic Millionaires.
- This is an opinion column. The thoughts expressed are those of the author.
- See more stories on Insider’s business page.
With corporate tax increases on the Biden Administration’s agenda, American corporations and CEOs are starting to make an all too familiar argument: higher corporate taxes will hurt America’s global “competitiveness” and discourage companies from investing in the United States.
The Business RoundTable, a collection of hundreds of American CEOs, just released a survey in which 98% of CEOs claimed Biden’s corporate tax hikes would hurt American corporate competitiveness, while roughly 66% said the proposed tax hikes would stifle wage growth in the US, and more than 70% said it would make hiring more difficult.
To anyone taking these claims at face value, this sounds disastrous. But what these CEOs are saying is false to the point of being nonsensical. It’s a gross scare tactic that relies on the American people not understanding how corporations actually work, and it’s been used for decades by the rich to avoid paying their fair share of taxes. I would know — I’m a millionaire and I used to be an executive at BlackRock, the world’s largest asset manager.
Higher taxes can mean better growth
Amidst all this fear mongering, one of the most basic facts of the corporate tax code often gets overlooked:corporations are only taxed on their profits. Operating expenses like employee wages or investments are not affected whatsoever by corporate tax rates, so it doesn’t make sense to fear a decrease in wages in response to a higher tax rate. That is not how a business works.
According to a report by the Economic Policy Institute, there is no data to support the notion that lower tax rates encourage more investments, jobs, or growth in the US economy. In fact, the report found that even if we were to raise the corporate rate to one of the highest levels in the developed world, US corporations would still pay roughly an equivalent tax rate to peer countries due to loopholes in our tax code. It’s worth noting that the Biden plan would raise the corporate tax rate from 21% to just 28%. That’s significantly lower than the old 35% rate, under which US corporations were able to amass over $2 trillion in profits each year. Even at that higher rate, they were clearly doing fine.
The 2017 Trump tax cuts were sold as a way to boost investment in the economy and make US corporations more globally competitive, but nearly four years later, the Trump tax cuts did not lead to an increase in investment, nor an increase in economic growth. In the two years preceding the law’s passage and the two years after, the economy grew at the exact same rate of 2.4%. The only things that did increase were corporate profits, inequality, and executive pay.
While corporations got their tax cuts, working Americans didn’t see the benefits they were promised. In 2018, the first year of the Republican tax regime, large corporations returned over $800 billion to shareholders through stock buybacks deciding that was a better use of money than increasing investment or wages. Meanwhile, wages barely budged, and some of the largest corporations have actually cut jobs. AT&T alone cut 23,000 jobs in the aftermath of the GOP tax bill, despite its assurances it would create jobs and make them more competitive. That may be what corporate America calls “competitiveness,” but I think the American people have a different idea.
The Business Roundtable is actually right that we have a corporate competitiveness problem, but they’re pointing in the wrong direction. Our current tax code provides a heap of loopholes and deductions for massive multinational corporations that operate in multiple countries, while leaving corporations that exist only in the United States at a competitive disadvantage, by corporate America’s own definition.
Tightening up loopholes and requiring profitable corporations to pay more will not hurt American competitiveness, it’ll make us a stronger and richer country. Asking corporations to pay their fair share will not collapse our economy, and it’s time for us to stop listening to their horror stories. Corporations have gotten away with hoarding their profits at the expense of the prosperity of our country for far too long.
Morris Pearl is the Chair of the Patriotic Millionaires, a former managing director at BlackRock, Inc., and the co-author of Tax the Rich! How Lies, Loopholes, and Lobbyists Make the Rich Even Richer.