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Corporate Tax Rate: Lowering it Doesn’t Create Jobs, Seriously

by Patriotic Millionaires | 3.27.18

More from the experts at the Institute for Policy Studies:

What is the corporate tax rate? The corporate tax rate is the rate at which businesses are taxed on their income. After the passage of the GOP tax bill in December, the current corporate tax rate is 21%, the lowest rate since 1938.

Before the GOP bill, the corporate tax rate was 35%, although due to loopholes and deductions, very few businesses paid even close to that rate. In fact, according to calculations from EPI, the effective tax rate that corporations paid was only 14% (if they paid any at all). We do not yet have data on the effective tax rate corporations will pay now that the statutory rate is only 21%, but it will almost certainly be lower than 14%.

Why did the GOP bill cut the corporate tax rate? The Trump administration claimed many times that American corporate tax rates were much higher than our international peers (despite the effective rate paid actually being lower than many other developed countries), and that this hurt our economic competitiveness. They claimed that a cut to the corporate rate would lead to corporations boosting the economy and creating new jobs.

So does cutting the corporate tax rate spur job growth? To investigate their claims, a report by the Institute for Policy Studies was the first to analyze the job creation records of the 92 publicly held US corporations that reported a US profit every year from 2008 through 2015 and paid less than 20 percent of those earnings in federal income tax. Did these reduced tax rates actually lead to greater employment within the 92 firms? The data IPS have compiled gives a definite - and sobering - answer.

Tax breaks did not spur job creation.

  • America’s 92 most consistently profitable tax-dodging firms registered median job growth of negative 1 percent between 2008 and 2016. The job growth rate over those same years among U.S. private sector firms as a whole: 6 percent.
  • More than half of the 92 tax-avoiders, 48 firms in all, eliminated jobs between 2008 and 2016, downsizing by a combined total of 483,000 positions.

If it does not spur job growth, who benefits from corporate tax cuts? So if reducing the corporate tax rate does not lead to job growth, what does it lead to? The resounding answer: pay increases for CEOs.

  • Average CEO pay among the 92 firms rose 18 percent, to $13.4 million in real terms, between 2008 and 2016, compared to a 13 percent increase among S&P 500 CEOs. US private sector worker pay increased by only 4 percent during this period.
  • CEOs at the 48 job-slashing companies within our 92-firm sample pocketed even larger paychecks. In 2016 they made $14.9 million on average, 14 percent more than the $13.1 million for typical S&P 500 CEOs.
  • Job-cutting firms spent tax savings on buybacks, which inflated CEO pay.
  • Many of the firms in our sample funneled tax savings into stock buybacks, a financial maneuver that inflates the value of executive stock-based pay. On average, the top 10 job-cutters in our sample each spent $45 billion over the last nine years repurchasing their own stock, six times as much as the S&P 500 corporate average.

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Patriotic Millionaires

Written by Patriotic Millionaires

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