- Data does not show that corporate tax cuts encourage investment, jobs or growth.
- Corporate tax cuts have only increased inequality and executive pay, not economic competitiveness.
- Higher corporate taxes will increase competitiveness and benefit all Americans.
- Morris Pearl is the chairman of the Patriotic Millionaires.
- This is a split opinion. The thoughts expressed are those of the author.
- You can find more articles on Insider’s business page.
With corporate tax increases on the Biden Administration’s agenda, American companies and CEOs are starting to make an all-too-familiar argument: higher corporate taxes will hurt America’s global “competitiveness” and discourage companies from investing in the US.
The Business RoundTable, a collection of hundreds of American CEOs, just released a survey in which 98% of CEOs claimed Biden’s corporate tax hikes would hurt American companies’ competitiveness, while around 66% said the proposed tax hikes would boost wage growth in the United States USA inhibit. and over 70% said it would make it difficult to hire.
To anyone who takes these claims at face value, this sounds disastrous. But what these CEOs are saying is so wrong that it makes no sense. It’s a crude horror tactic based on Americans’ failure to understand how businesses actually work, and it’s been used by the rich for decades to avoid paying their fair share of taxes. I would know – I’m a millionaire and used to be an executive at BlackRock, the world’s largest wealth manager.
Higher taxes can mean better growth
With all of this scare tactics, one of the most basic corporate tax facts is often overlooked: companies are only taxed on their profits. Business expenses, such as employee wages or investments, are in no way affected by corporate tax rates. Hence, it makes no sense to fear a decline in wages in response to a higher tax rate. That’s not how business works.
According to a report by the Economic Policy Institute, there is no data to support the belief that lower tax rates encourage more investment, jobs, or growth in the US economy. In fact, the report found that even if we increased the corporate rate to one of the highest levels in developed countries, US companies would still pay roughly equivalent tax rates to comparable countries due to loopholes in our tax laws. It’s worth noting that the Biden plan would raise the corporate tax rate from 21% to just 28%. This is significantly less than the old 35% rate that allowed U.S. companies to generate over $ 2 trillion in profits each year. Even at this higher rate, they were clearly doing fine.
Trump’s 2017 tax cuts were sold to stimulate investment in the economy and make US companies more competitive globally. Almost four years later, Trump’s tax cuts resulted in neither an increase in investment nor an increase in economic growth. In the two years before the law was passed and the two years after it, the economy grew at exactly the same rate of 2.4%. The only things that increased were corporate profits, inequality and executive compensation.
While corporations received their tax cuts, working Americans did not see the benefits they were promised. In 2018, the first year of the Republican tax regime, large companies returned over $ 800 billion to their shareholders through share buybacks, ruling that it was a better use of money than an increase in investments or wages. Wages have changed little since then, and some of the largest companies have actually cut jobs. AT&T alone has cut 23,000 jobs under the GOP tax legislation, although it has promised to create jobs and make them more competitive. This is what the American company might call “competitiveness”, but I think the American people have a different idea.
The Business Roundtable is indeed right that we have a problem with the competitiveness of companies, but they point in the wrong direction. Our current tax laws offer a wide variety of loopholes and deductions for massive multinational corporations operating in multiple countries, while corporations that only exist in the United States are at a competitive disadvantage by the American corporation definition.
Exacerbating loopholes and demanding that profitable companies pay more will not hurt American competitiveness, but will make us a stronger and richer country. Asking companies to pay their fair share will not collapse our economy, and it is time for us to stop hearing their horror stories. Corporations have managed to hoard their profits at the expense of our country’s prosperity for far too long.
Morris Pearl is chairman of the Patriotic Millionaires, former CEO of BlackRock, Inc. and co-author of Tax the Rich! How lies, loopholes and lobbyists make the rich richer.