Without a single major legislative victory under his belt, President Trump is hoping to break his Capitol Hill losing streak with a win on tax cuts. At rallies around the country, he’s pitched his tax plan with tremendous passion, particularly when bemoaning the plight of overburdened corporations.
“Our high business tax is nothing more than a crushing tax on every product made in America. We have totally surrendered our competitive edge to other countries,” Trump complained at a North Dakota event.
The president is particularly sympathetic to multinational firms that have stockpiled trillions of dollars in profits offshore—entirely against their will, in his view. This is wealth, Trump said, that “just can’t come back.”
Why can’t these foreign earnings come back? Because the companies would actually have to pay U.S. taxes on them—like average people do.
The Republican plan would slash these supposedly beleaguered U.S. corporations’ IRS bills. The federal tax rate on corporate profits would drop from 35 percent to 20 percent—costing our schools, health care, and environmental protection $1.8 trillion in lost revenue over 10 years. And through what Trump calls a new “American Model,” it would allow corporations to pay little to no U.S. tax on future foreign profits, a move that would only encourage more offshoring.
Trump loves to say that if Congress adopts his package of tax cuts for corporations and the wealthy, we’ll see our economy take off like “a rocket ship.” This imagery may work for people who dream of one day becoming an astronaut, but the fantasy that tax cuts boost economic growth and jobs has been thoroughly rebutted by a wide range of experts.
Just look at the data on low-tax Kansas versus high-tax California. The Golden State has had one of the most golden growth rates in the country, whereas Kansas has fallen into economic crisis, having to make deep cuts to education and other services. A couple of years ago, the U.S. Federal Reserve analyzed data from states across the country and found that, outside economic crisis periods, “little evidence” suggests that corporate tax cuts lead to more jobs.
More recently, the Economic Policy Institute concluded that corporate tax-rate reductions are one of the least effective ways to stimulate employment. Most of the benefits from these cuts flow to wealthy owners of capital (shareholders and business owners) who can afford to squirrel away much of their income. If policymakers really wanted an economic boost, they’d increase pay for low-wage workers who need to spend nearly every dime they earn.
In a recent report I co-authored, the Institute for Policy Studies brought a new approach to the debate over jobs and corporate tax cuts. Instead of speculating what corporate tax-rate cuts could mean to jobs, we analyzed the job-creating records of the corporations that were profitable every year between 2008 and 2015 and yet exploited enough loopholes to pay an effective corporate tax rate of less than 20 percent—the Republicans’ preferred rate.
If Trump’s claims were true, these firms would’ve been among the country’s most powerful engines of job creation. Instead, more than half of them slashed their workforces over the past nine years. What did they do with their tax savings? We found that a good chunk wound up in the pockets of CEOs. The average compensation for the top executives at the tax-dodging, job-cutting firms was $15 million in 2016, even more than the $13 million average for S&P 500 CEOs.
President Trump’s top diplomat, Secretary of State Rex Tillerson, is a prime example of a CEO who used tax savings that could have gone toward job-creating investments to enrich himself instead. During Tillerson’s tenure at ExxonMobil, the oil giant paid an effective tax rate of just 13.6 percent from 2008 through 2015—less than half the statutory rate—despite consistent yearly profits.
Proceeds from tax-dodging helped ExxonMobil become corporate America’s stock-buyback king. Between 2008 and 2016, Tillerson allocated $146 billion in corporate profits to repurchase ExxonMobil stock on the open market, a financial maneuver that artificially inflates a company’s share price. In turn, this inflates the value of executives’ stock-based pay.
As CEO, Tillerson took in $27 million in compensation in 2016 and then scored a $180 million cash payout when he left to join the Trump administration. ExxonMobil workers were not nearly as lucky. Tillerson cut the firm’s global employee count by more than one-third between 2008 and 2016. ExxonMobil does not reveal U.S. job figures.
Our findings came as no surprise to Elise Bean, the former staff director and chief counsel for the U.S. Senate Permanent Subcommittee on Investigations. In 2011, she led a review of a 2004 “tax holiday” that allowed U.S. corporations to pay zero U.S. taxes on profits they’d been hoarding overseas if they brought them back to the United States. The findings were devastating. Although Congress intended the tax-holiday savings to be used for job creation and other growth-producing expenditures, corporations pocketed the windfalls and then turned around and actually slashed jobs. The top 15 beneficiaries, companies that got away with paying Uncle Sam nothing on $150 billion in profits, wound up cutting their overall U.S. workforces by 21,000 jobs.
When I asked Bean recently if more couldn’t be done to tie tax breaks to job creation, she was dismissive. “Because money is fungible,” she explained, “there is no practical way to require funds from tax savings to be spent a particular way. Other funds could always be diverted to uses that they otherwise would not have gone to. Theoretically, a system could be established to track how every dollar at a corporation is spent, but it would be too burdensome to allow effective policing by the federal government.”
Trump’s invitation-only tax rallies have been full of red MAGA hat–wearing, cheering fans. But it remains to be seen whether the president’s flag-wrapped tax plan can win over enough support to become law.
Lamentations about overtaxed corporations may fall flat when people remember that U.S. corporate profits are at near-record highs. Polls already show that only one in five Americans support corporate tax-rate cuts and just one-third of voters believe the old zombie-like trickle-down theory that tax cuts grow the economy and create jobs.
But “Tax Cuts ‘R’ Us” is one of the Republican Party’s top-line brands. The possibility for party unity on this issue is higher than on health care and many other issues. And with the Business Roundtable and other corporate lobby heavyweights going into high gear, some Democrats could very well also be brought on board.
If we’re lucky, Capitol Hill will remain mired in dysfunction. If not, Trump and his wealthy friends will be throwing one big party.
Sarah Anderson directs the Global Economy Project and co-edits Inequality.org at the Institute for Policy Studies. @Anderson_IPS