Corporate Tax Cuts Won't Boost Wages Or Improve America's Economic Well-Being

A scathing new report by the Economic Policy Institute confirms what progressives have already known:  corporate tax cuts will NOT boost wages or have any practically significant net benefits for the non-rich.  This report is rather timely, given that a massive corporate tax cut is a key component of the Trump-led Republican tax reform agenda that is currently under debate in Congress.

In a nutshell, the top corporate tax rate had hovered around 50% for decades until 1986 when Reagan cut it to 34%, and to this day it remains at 35%.  And while there were always loopholes for both individuals and corporations, the number of loopholes for corporations also increased dramatically since Reagan's 1986 tax code overhaul, to the point where many large corporations pay zero or even negative taxes!  And all the while, workers' wages have lagged behind both corporate profits (since around 1990) and labor productivity gains (since 1973 and especially since 1980), often not even keeping up with inflation for those at the bottom of the scale.  And trade deficits, foreign tax havens, and foreign cash holdings in such havens have only increased, along with outsourcing and offshoring.

Thus, the idea that further tax cuts for large corporations would benefit American workers is nothing but the latest incarnation of trickle-down voodoo economics, plain and simple.  By all means, close all the loopholes.  Give tax breaks and cuts to truly small businesses.  But cutting the marginal rate on large corporations would do nothing but make the already rich even richer, while blowing a massive hole in the federal budget as well.

In the past, the TSAP recommended cutting corporate taxes while simultaneously closing loopholes.  Currently, though, we no longer recommend any tax cuts for corporations whose annual profits are in the seven figures or higher.  In fact, we now recommend making the corporate tax code that much more steeply progressive, with the top bracket restored to 50%, with NO LOOPHOLES this time, and the very smallest businesses paying no tax at all.  We also support the corporate tax applying only to retained earnings (i.e. profits less any dividend payouts) while taxing dividends and capital gains for individuals at the same rate as ordinary income.  And as we have noted before, the top marginal tax rate for individuals should be at least 50% beyond the first million dollars per year and perhaps 70% beyond the first ten million, again with NO LOOPHOLES this time.  Any overhaul of the tax code that we would support should really include all of these features.