Corporate Tax

Opinion | The GOP opts for a nonsensical corporate tax argument to reject Biden’s infrastructure plan

So desperate Republicans have turned to their old standby, the villain’s last refuge: fear of taxes.

Biden’s proposal is paid in part by a modest increase in corporate taxes. Whatever else might end up in the bill, Republicans say, opposition to this provision is their “non-negotiable red line.”

The story continues under the advertisement

Unfortunately for Republicans, corporate tax increases are also proving phenomenally popular. For many years, Americans have believed that big companies no longer pay their “fair share”. Of course, just because something coordinates well doesn’t necessarily mean it’s a good idea. Republicans are therefore trying to get this narrative out to the public: The 2017 GOP tax revision, which cut the corporate rate from 35 percent to 21 percent, was a tremendous achievement that resulted in economic growth, recruitment, and strong government revenues for the gangbusters. So they claim that partially reversing this policy by raising the corporate rate to 28 percent, as Biden suggests, would be an economic death sentence.

This argument has some problems. Among them: Even one of the architects of then-President Donald Trump’s tax cuts, former director of the National Economic Council, Gary Cohn, admitted that this is nonsense.

“When it comes to the corporate tax rate, I’m actually okay with 28 percent,” he said in an interview last year when asked about the proposal made by then-candidate Biden. “The level we reached in our tax plan on the corporate side was actually a little lower than I thought we had to go.” He said that the “corporate community” would likely be “okay” at this level as well, and that corporate groups of the Trump administration said the same during private discussions in 2017. (The public attitudes of the corporate sector are now different.)

The story continues under the advertisement

There are some interesting echoes from the 1980s here. When President Ronald Reagan signed a massive tax cut in 1981, his own bureau of administration and budget publicly voiced concerns about its size and its impact on the deficit. Over the next several years, Reagan signed several major tax increases in response to the balloon deficits correctly predicted by its employees. This partial recovery is a fact that Republicans today conveniently forget.

However, the bigger problem for Republicans today is that Trump’s tax cut track record has been a bust. This is in line with the standards set by lawyers for the law.

Back in 2017, the bill’s boosters provided a very specific explanation of how the corporate tax cuts would deliver “rocket fuel” to the US economy. Lowering taxes on corporate profits would attract more capital, which in turn would increase corporate investment, which would lead to growth in economic activity, recruitment and wages. Additional economic growth would “amortize” this entire law.

The story continues under the advertisement

The law had no significant impact on corporate investment, according to an analysis by the International Monetary Fund in 2019. The growth of the gross domestic product was not significantly different in the years after the tax cut (and before the covid) than in the years before. Tax revenues were also much lower than forecast without the cuts, meaning the law wasn’t paying for itself.

It is true that in the aftermath of the tax cuts and before the Covid-19 outbreak, the labor market was strong and that unemployment was very low, but unemployment was already falling eight years before Trump’s tax cuts. This existing trend only continued.

The story continues under the advertisement

And again, the specific mechanism of “capitalization” by which the law was supposed to create an economic gold mine never occurred. Those of us who had been skeptical of the rosy Republicans’ 2017 predictions pointed out that anything that could hold back corporate investment didn’t seem like a lack of access to capital. By that time, companies were already sitting on piles of cash that they could not find productive investments in. The tax cuts appeared to be more of a godsend for shareholders. This forecast was realized in the form of a share buyback boom.

Given this track record, Republican warnings of the economic apocalypse that would result from a reasonable tax hike are not particularly convincing. But since tax cuts are the only thing Republicans still reliably stand for, it’s hard to blame them for trying.

Related Articles