The $ 3.5 trillion budget proposal that goes through Congress would go a long way towards strengthening America’s safety net. For example, it would make childcare more affordable for low and middle income families while providing a path to universal early childhood advancement. It would also support the incomes of low and middle income workers by continuing the enhanced income tax breaks originally created as part of various pandemic relief packages.
The budget proposal would also make healthcare more affordable by, among other things, lowering prescription drug prices, expanding insurance premium subsidies created under the Affordable Care Act, and launching a new program to provide sickness insurance to about two million uninsured Americans. Oh, and it would help businesses directly by providing federal funding to cover the cost of family vacation. But that’s not the only way businesses can benefit from this “liberal” proposal.
Indeed, most of the Proposal Funds benefit programs help businesses in a variety of ways, from enabling more parents – especially women – to enter the labor market, to subsidizing the income of low- to middle-income workers, thereby relieving any potential wage increases that employers would have to pay . It would also give people more money to spend on consumer purchases, which drives up corporate profits.
For this reason, business groups have in the past supported the social programs that the proposed budget would fund. Despite many initiatives that businesses support and would benefit from, corporate lobbyists are rejecting the budget.
Why? The answer is simple: To cover some of the $ 3.5 trillion spending, Congress is considering raising the corporate tax rate from its current 21 percent to 28 or 26.5 percent. This tax hike is why American companies are against a budget that otherwise helps businesses.
Jay Timmons, CEO of the National Association of Manufacturers, complained that this tax hike would “get America back to where we were” before the 2017 corporate tax cut was approved during the Trump administration. Which is neither right nor, as it turns out, a bad place for business.
It’s not accurate because the corporate tax rate was 35 percent before Trump’s tax cuts were passed, still well above the level proposed to pay for new federal spending. And in those days leading up to Trump’s tax cut, companies were doing pretty well from a profitability standpoint. How well? According to BEA data, aggregate corporate profit after tax in 2017 was $ 1.87 trillion.
In context, that profitability number is 873 percent higher than in 1981, when President Reagan first introduced supply-side tax cuts for corporations (and wealthy individuals). Remember that according to supply-side theory, tax hikes are always intended to hurt the economy, while tax cuts for businesses and wealthy individuals are always meant to increase them at such a rapid pace that tremendous benefits trickle down on people in everyday life. But things didn’t go as the vendors promised.
From the time the supply-side tax cuts were first introduced in 1981 to the passage of Trump’s tax cuts in 2017, corporate earnings growth outpaced both national GDP growth of around 165 percent and US wages by a far lower 90 Percent of income earners – that was around 40 percent.
Neil Bradley of the US Chamber of Commerce, who moved all-in on the supply side, took advantage of the downside of the theory that any tax hike will hamper economic growth when he warned that the proposed tax hike would be “economically devastating to the country”. “
No it won’t. The truth is, the data has never supported a core supply-side tenet: that tax cuts always boost the economy, or that tax increases always hurt it.
On the contrary, every credible, independent supply-side study to date by the London School of Economics, the IMF, or the Congressional Research Service has found tax rates to be lowered or raised for corporations – or even wealthy individuals – is simply not correlated with economic growth. However, investing in human capital leads to increased economic activity that benefits everyone – including businesses.
• Ralph Martire, firstname.lastname@example.org, is executive director of the Center for Tax and Budget Accountability, a tax policy think tank, and Arthur Rubloff Professor of Public Policy at Roosevelt University.