Wednesday, August 30, 2017

Cutting The Corporate Tax Rate Will Not Create Jobs

The current tax plan proposal includes cutting the corporate tax rate on profits from 35% to 20%.  Trump wants the tax rate cut even further to 15%.  The rationale for the tax cuts is that it will create jobs.  The CEO of AT&T made that argument in a recent speech to his employees and told the them to send supporting letters to Congress.  The CEO lied about its tax rate and job creation.

*  AT&T's effective tax rates after taking advantage of deductions was only 8% 2008-2015 
*  During that period with an effective rate of 8% AT&T reduced its labor force by 80,000
*  AT&T used $34 billion of its profits to buyback its own stock instead of investing in capital
*  Much of the CEO's compensation is in the form of stock options which benefit from buyback

AT&T was not the exception. 92 corporations with profits 2008- 2015 paid less that 20% effective tax rate:

* The median job growth in the 92 companies was -1% compared with median of rate of 6% by companies that paid more than 20% tax rate
*  The 92 companies with tax rate below 20% cut 483,000 jobs during that period

Don't pay any attention to arguments about the 35% tax rate in the US.  The effective tax rate is well below the top rate.  Some corporations, like GE, have not paid any taxes for several years because they take advantage of deductions.  More importantly, it is a myth that cuts to the corporate tax rate will create jobs.  It may increase profits for some firms but they may not invest those those profits in new capital or create new jobs.  Investments in new capital may increase productivity and reduce job growth.  Moreover, the primary motivation for new investments has little to do with the tax rate.  It is all about the market opportunity provided by the investment.

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