Opinion: An about-face from Democrats on corporate taxes?

Throwback Thursday: Back when Democrats knew the corporate tax rate was too high.

So, we’re really going to do this, huh? President Trump gave a speech about tax reform on Wednesday, and it appears we’re now going to be subject to a kabuki debate between Democrats and Republicans about whether to cut the corporate income tax rate. Really? After eight years of Democrats from President Obama on down recognizing the high U.S. rate puts American companies at a competitive disadvantage and gives them a reason to make otherwise unmerited mergers with foreign companies and move their headquarters overseas? All for no reason other than the fact a Democrat is no longer in the White House?

It looks that way. For now Democrats are couching their opposition to GOP plans as blocking cuts for “the wealthiest.” But elsewhere, such as in the “Better Deal” Senate Democrats are hawking as their own warmed-over brand of populism, they sound like they’re backing away from the talk about corporate tax rates harming companies’ competitiveness. And it’s worth noting that their base, and some of their loudest cheerleaders, don’t see a distinction between cuts for the highest-earning individuals and cuts for companies. They’re all “the rich,” and they all need to pay their “fair share.”

Yes, it’s something of a time-honored — if honored by no one else — tradition for the minority party to suddenly take a stand against something it previously supported, just to please its base. And there has always been disagreement between the parties about how far to go in lowering corporate tax rates. But it tells us something about the Democratic base and its priorities that it would choose to take up this particular fight.

The left has been howling about “record” corporate profits, as if they are somehow a bad thing, for years now. The main implication appears to be that companies could choose to pay their workers more, but aren’t, and therefore need to be taxed as penance. Or something. They seem to ignore that for much of the past decade there has been a great deal of slack in the labor market due to higher-than-usual unemployment; and that slack remains in the labor market due to the abnormally low (by historical standards) labor-force participation by prime-age men in particular; and that much of the job growth during this time came in low-wage industries such as food service that are more likely to eliminate jobs through automation than to dramatically increase pay, whatever the Fight for $15 people choose to believe. Taken together, those factors are far better explanations for slow wage growth than corporate greed. So is the rising cost of non-cash compensation, such as health insurance, that has simply consumed much of the growth of what could have gone into paychecks.

They also ignore a big element of our corporate landscape that undermines both the notion that companies are making plenty of money already, as well as the subsequent argument against corporate tax reform.

First, let’s acknowledge that profits aren’t the same thing as profit margins. Some very large companies bring in a lot of revenue and a lot of profit, but their profit margins aren’t exactly fat (health insurers and retailers come to mind, despite the popular conception of those sectors). Nor have most of the measures I’ve seen for corporate profits been adjusted for inflation, corporate revenues, the size of the economy, or growth in population/the work force. It’s a bit like comparing the nominal amount of taxes levied in 1950 vs. those today without adjusting for such factors; no one does that, unless they’re trying to draw a distorted picture.

Second, while corporate profits in the aggregate are healthy, the story isn’t the same for all companies. A USA Today analysis last year of 2015 profits found just 6 percent of companies listed in the S&P 500 accounted for over half of its net profits. Now, some of these are just huge companies. But they don’t represent half of the index’s revenues; it’s more like one-quarter. That suggests there are some companies doing extremely well while some others are struggling. Now, it’s not the government’s job to make the latter group more profitable — but then, that shouldn’t be the intent of corporate tax reform. The intent of reform should be to make them more competitive, compared to peers in other countries; whether they parlay that into greater profitability is up to them. In any case, if most of these “record” profits are being generated by a relative handful of companies, that isn’t an argument for keeping tax rates high on all companies — or even raising corporate taxes, as Sen. Elizabeth Warren has suggested.

Third, while the companies among that 6 percent pay varying tax rates, some of them are the very ones that benefit most from the current, loophole-ridden system — while other companies suffer from that same system. While the Congressional Budget Office reported earlier this year that the average corporate tax rate paid is closer to 29 percent than the statutory rate of 39.1 percent (federal and state combined), a number of companies pay less than that. Some of them are among that 6 percent, particularly our tech titans: Apple, Microsoft, Google. One goal of reform should be to level the playing field — not by raising those companies’ taxes, but by lowering the burden on the others. And while we’re talking about tech companies, let’s acknowledge that their disproportionate representation among our most profitable companies isn’t guaranteed to continue. Apple, for example, accounted for almost $54 billion, or nearly 7 percent of the S&P 500’s profits, on its own. That degree of profitability almost certainly won’t last forever, and it’s ludicrous to use it as an argument against reform that would benefit other companies, including the ones that may help produce the next big round of economic growth.

Finally, it’s important to remember that when we talk about reform, we’re talking about improving the incentives for companies at the margin. The CBO found that while the marginal effective tax rate — that is, what a company could expect to pay in taxes on “an investment that pays just enough to make the investment worthwhile” — is still lower at 18.6 percent, it remains higher than most of our competitors around the world. In particular, it’s higher than the rate found in some other industrialized countries with which we compete, such as Germany (15.5 percent), France (11.2 percent), Australia (10.4 percent) and Canada (8.5 percent), that are generally perceived as higher-tax nations with the kind of social-welfare programs the opponents of corporate tax reform would like to see in our country. It’s also higher than the lower-tax, developing nations to which some U.S. jobs have gone over the past few decades: Mexico (11.9 percent), China (10 percent) and South Korea* (4.1 percent).

Reform is about changing the incentives for those investments, not to say even more promising ones, so that they’re made in our country rather than elsewhere. Reform opponents have yet to explain why that was a concern when Obama was president, but suddenly isn’t anymore.

*Arguably, South Korea should be considered a developed country rather than a developing one, but it doesn’t really fit in the higher-tax, more-welfare group like the others.

Reader Comments 0

100 comments
bonoyileh
bonoyileh

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JohnnyReb
JohnnyReb

Where do Progs learn economics?

Perhaps they do not and instead attended community organizer classes.

They whine continuously about the poor and minorities not being given opportunities.

Where do they think opportunity comes from?

Only so many can work for the government and most sane people will agree there are tooooooo many government workers now.

That leaves the private sector to provide opportunity through exapansion, new businesses, etc.

But the Progs don't want those who would make those investments to receive tax reductions.

Instead they want to tax them more and just give the money instead of opportunity.

Dunderheads 

JFMcNamara
JFMcNamara

@JohnnyReb That's a pretty big strawman you are poking.


For all your dramatics, the economy is doing well in spite of your dire warnings.  If you were right, the economy would be awful...and before you pull out the tired, disproven labor force participation stat, here is a recent article dispelling it as a problem. 


I would have a lot more respect if you dropped all the pretense and just said that you want a tax cut because you want more money.  You sound silly right now.


https://www.cbsnews.com/news/unemployment-is-low-but-millions-of-americans-remain-on-sidelines/

breckenridge
breckenridge

"We must respect the president's authority and constitutional responsibilities. We must, where we can, cooperate with him. But we are not his subordinates. We don’t answer to him. We answer to the American people.

 

We must be diligent in discharging our responsibility to serve as a check on his power. And we should value our identity as members of Congress more than our partisan affiliation.

Congress must govern with a president who has no experience of public office, is often poorly informed and can be impulsive in his speech and conduct."  US Senator John McCain, R-Arizona, 8-31-2017


1. Not fake news.

2. An entirely accurate statement. 


Well done Senator McCain.

JohnnyReb
JohnnyReb

@breckenridge

Not surprised you would like it.

McCain has proved a traitor to his party and the base.

He needs to retire and live out what days he has remaining without further release of statements that only defames him.

DawgDadII
DawgDadII

Corporations are people. Owners/shareholders (inclusive of retirement and pension fund investors in the private AND public sectors), workers, creditors, customers, suppliers, service providers, et al. When the ability of a company to compete is impeded it hurts PEOPLE. On a macro scale, like taxation, it impacts virtually everyone, directly or indirectly.

Things like compensation, benefits, fair competition, and safety in the workplace need to be properly incentivized, and that can be addressed and potentially improved within the context of lower tax rates and simplification. This is really a battlefield in the larger political conflict over the proper size and role of government, more expansive and intrusive and socialist vs less intrusive and less controlling and more efficient.

JFMcNamara
JFMcNamara

@DawgDadII This is absolute nonsense. First off, we have the number one economy in the world, and we have companies making more money than they every have.


Secondly, people aren't hurt by taxation.  The tax money is spent on things we actually need like defense, taking care of the elderly, taking care of the poverty stricken and supplying healthcare to our citizenry.  Every one in our society sees those benefits. 


Listening to 'pubs, you would think they collect the money and flush it down a toilet.   Every dime we spend has been approved by Congress largely through compromise.  You can see every dime we spend in the budget, and there isn't a lot of waste. 


If you are for tax "reform", because you don't feel like its your responsibility to pay for others or your own defense, fine, but that selfish reason is the only reason to really want tax "reform"

Kathy
Kathy

Boo hoo! My heart is breaking for all those fat cat corporations who need more million dollar bonuses while the average worker is sweating to pay the rent.  How can they cope! Corporations can save some money by getting rid of their lobbyists, private jets, etc. Stop trying to deceive the public with these sob stories about unfair taxes.

BeOfService
BeOfService

The economy is growing at about the same rate it was during the last year of the Obama administration.  You and your sociopath president can rewrite history between you, but the r3est of us don't have to listen to it.

breckenridge
breckenridge

@BeOfService 

I see that Robert Mueller has brought on board a team from the financial crimes section of the criminal investigation division of the IRS.  These guys have a reputation of being incredibly sharp.

Early on in this investigation Trump tried to intimidate Mueller.  I'm so sure........a Vietnam veteran who was awarded multiple medals for bravery and valor intimidated by a draft dodger who hid under his bed during the Vietnam war?  Not too likely.

Carry on Mr. Mueller.  Drain that swamp.

JohnnyReb
JohnnyReb

@BeOfService

Someone has been reading WaPo.

You Barry supporters just can't accept that he was a dud.

JohnnyReb
JohnnyReb

@breckenridge @BeOfService

Adults, are you in the group, knew as soon as a special council was appointed that there would be someone found guilty of something.

And following the money usually does it.

What's missing and you conveniently omit is, the Trump/Russian collusion on the election has fallen flat.

That was after all the point of the investigation, or do you conveniently forget?

breckenridge
breckenridge

@JohnnyReb @breckenridge @BeOfService 

What a bunch of horse droppings. You've been insistent from day one that Trump is guilty of nothing.  Now you're changing your tune.

Perhaps Trump will not be found guilty of any crime. However he is guilty of demeaning the office of president, he is a trashy and classless individual.

JohnnyReb
JohnnyReb

@breckenridge @JohnnyReb @BeOfService

No, I am not abandoning my original position which was Trump is not guility of collusion with Russia on the election.

Not being able to find anything on that, Mueller will look into his financials and that of his staff.

It won't be surprising that he finds some law broken but I would be surprised if its large.

As to class and trash, that's your perception but neither is against the law and voters have already spoken on that.

bu22
bu22

@JohnnyReb @breckenridge @BeOfService  Even the WaPo had an article yesterday or today pointing out how it had mostly disappeared.  A few extraneous things unrelated to Trump kept getting thrown out.  Except for CNN who was doubling down on their conspiracy theories not matter how stupid it made them look.

JohnnyReb
JohnnyReb

LibProgs won't agree, it hurts their fee fee's, but the economy does not like them.

Just the prospect of a Repub in the White House lit a fire under the economy, it took off and blue skies since.

RoadScholar
RoadScholar

@JohnnyReb He's riding Pres Obama's shirt tales. You do not turn the American economy  quickly. It's like a ship, not your plastic canoe.

FIGMO2
FIGMO2

Third, while the companies among that 6 percent pay varying tax rates, some of them are the very ones that benefit most from the current, loophole-ridden system — while other companies suffer from that same system.

The problem with dem voters is they can't see beyond their own playing field into the adjoining field.

The DNC has 'em fenced into believing it's only workers stuck in the dugout.

Dem voters have no empathy for ANYONE running a business. 

breckenridge
breckenridge

HOUSTON -- Houston's Muslim community has opened many of its community centers to people seeking shelter from Harvey and sent hundreds of volunteers to serve food and deliver donations. Some have rescued neighbors from high water.

Their efforts continue, even as mosques welcome congregants for Eid al-Adha, also known as the festival of sacrifice and one of Islam's holiest days, from Thursday evening through Friday evening. An Islamic Society of Greater Houston leader insists evacuees won't be displaced even if people have to pray in the parking lot during the festival's Friday morning prayer.

Wait a minute.......aren't all Muslims terrorists that want to kill Americans and destroy our  way of life?

This must be FAKE NEWS.


JohnnyReb
JohnnyReb

@breckenridge

Generalities, a term you LibProgs don't understand and can't comprehend.

When the Muslims have rooted out all their rotten apples then the generality will slowly come around to favor.

Tell us, if you had to single out a religious organization where it was more likely than others it would produce terrorists, which would you truthfully point to?

breckenridge
breckenridge

@JohnnyReb @breckenridge 

The Muslims need to root out their bad apples.

And the whites need to root out their bad apples - KKK, neo-Nazi, the whole white supremacy gang.

JohnnyReb
JohnnyReb

@breckenridge @JohnnyReb

Comparatively speaking, and absolutely not giving them a pass, but the KKK, neo's and supremacists are a thimble in the bathtub.

Plus even with all their hate, they don't hold a candle to the Islamic terrorists.

So, no cigar and an extremely weak rebut.

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Earn Money Home..

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GatorGuru
GatorGuru

As a lifelong Democrat, I would support corporate tax reform if it would help the employees, especially the middle and lower class.  (The wealthy have the power to take care of themselves).  But at this time I don't see this result.  We're basically at full employment from an economist's perspective (I think 4% unemployment  is considered 'full employment'), so there won't be more jobs created.  In fact, technology is predicted to eliminate even more jobs.  

In terms of our international competitiveness and the marginal effective tax rate, even though the U.S. rate may be higher, there are many other factors affecting corporate investment, such as an equitable legal system, political stability, and an educated work force.  

I'm willing to look at any proposals for change as long as it helps the employees, not just the wealthy owners and managers.  

RoadScholar
RoadScholar

@GatorGuru In that 4% are people unable to work due to disabilities, mental health issues, etc.

DS
DS

Read "Capital in the Twenty-First Century" for a better explanation of stagnant wages. Hint: it isn't because corporate taxes are too high.

RomanGabriel
RomanGabriel

@DS If taxes are so high then why are corp profits skyrocketing?

jhgm63
jhgm63

Well, since there is no longer a democrat in the white house, deficits will no longer matter. Also, we will be told that any cuts will magically pay for themselves (even though we know they won't). The fun part will be seeing how they make all this work under the sequester rules.

JohnnyReb
JohnnyReb

@jhgm63

Deficits did not matter to the Dim that just left the White House.

Otherwise how do you explain him doubling the national debt by adding 10 Trillion?

And I might add, with nothing to show for it.

McGarnagle
McGarnagle

@JohnnyReb @jhgm63 

I guess avoiding our economy from collapsing during the great recession is nothing to show for it?

HDB0329
HDB0329

@JohnnyReb @jhgm63 .....that Democrat got us out of a recession that a REPUBLICAN got this nation into......and the $10T also includes TWO UNPAID WARS that the REPUBLICAN didn't pay for with a tax increase.....


....that's a LOT to show for it.....

TheCentrist
TheCentrist

@JohnnyReb @jhgm63  Because of Obama and Boehner deciding to work with Democrats rather than allowing SOCONS to obstruct, the annual deficit has been reduced over the past eight years.


All accounts say 20% of the increase in the national debt can be attributed to Obama, and most of that was associated with the "bailout" that had already been approved before he was elected.

RoadScholar
RoadScholar

@Starik @McGarnagle @JohnnyReb @jhgm63 How about finally placing the war debt from Bush into the expenditures column at the beginning of Pres Obama presidency. Remember Bush kept the wars off budget/bottom line.

McGarnagle
McGarnagle

And lets be honest here. Tax reform is not going be any easier than healthcare reform.


Tax cuts may happen. But a re-vamp tax code is far more complex.

HDB0329
HDB0329

....problem is that the tax rate does NOT enter into a decision for a corporation to hire or to build....


.....it's product demand......


....increase the demand......you'll increase hiring.......


...if the corporate tax rate was so bad, why did BMW, Mercedes-Benz, Toyota, Volkswagen, Hyundai/Kia build plants here in the US??


...BTW...we need to INCREASE taxes in order to pay for the WARS this nation is in.


....name the only time period that taxes were not increased to pay for wars??

JohnnyReb
JohnnyReb

@HDB0329

Bump your head earlier?

Even the Barry administration was talking about companies moving their headquarters overseas to avoid our high tax rate.

Of course the Libs discussed passing a law to prevent it, not fixing the problem because lowering taxes is just not in the Lib DNA.

HDB0329
HDB0329

@JohnnyReb @HDB0329 ...nope...didn't bump my head...just looking at what the 'Pubs always cry about...the debt....which THEY accumulated with TWO UNPAID WARS....


...and we all know that business pays NO WHERE NEAR the marginal rate.....

breckenridge
breckenridge

Kristen Soltis Anderson is losing faith in her party. And that should trigger alarms for Republican leaders concerned about the GOP’s long-term health.

Anderson is a smart and telegenic young Republican pollster. She has specialized in studying how the party can improve its anemic performance among the Millennial generation, which will pass the right-leaning baby boomers to become the largest generation of eligible voters in 2018.

Now she is wondering whether Donald Trump’s GOP has a place for people like her, who want a party that marries support for less government and robust national defense with a commitment to racial and social inclusion.

-------------------------------------------------------------------------------

Good luck with that inclusion thing Kristin.

https://www.theatlantic.com/politics/archive/2017/08/a-republican-pollster-is-losing-faith-in-her-party/538497/

Robert1959
Robert1959

@breckenridge Does anybody remember the GOP "Growth and Opportunity Project" proposed by Reince Priebus after the 2012 election that Mitt Romney lost.

The report stated - "A smug, uncaring, ideologically rigid national Republican Party is turning off the majority of American voters, with stale policies that have changed little in 30 years and an image that alienates women, minorities and the young, according to an internal GOP study. That blunt assessment on the state of Republicanism at the national level comes from a major new report that will likely shake up an already battered party. It was commissioned by the head of the Republican National Committee in the wake of Mitt Romney’s defeat 2012.
Without offering detailed policy prescriptions, the 98-page report calls on the party to “smartly change course,” modernize itself and develop “a more welcoming brand of conservatism that invites and inspires new people to visit us.” There are extensive lists of proposals, many of them technological and procedural, designed to help the GOP better engage voters, especially women, minorities and the young, and reverse a losing pattern in five of the last six popular votes for president. “Unless changes are made, it will be increasingly difficult for Republicans to win another presidential election in the near future,” the report concludes.

Former RNC Chairman Reince Priebus, in remarks in Washington on the release of the study by the party’s “Growth and Opportunity Project,” is unsparing in his analysis of the 2012 election setback.


JohnnyReb
JohnnyReb

@breckenridge

Inclusion, how nice.

Is that sorta like Social Justice?

I guess Kristen missed the part about Millennials moving to the burbs, wanting to raise a family in a good place, etc.

Next will be they vote Republican.