As Bush promised, the bill included significant corporate tax cuts. Further reductions in corporate taxes would follow with the American Jobs Creation Act of 2004 and the Tax Cuts and Jobs Act of 2017. The rhetoric in each instance was the same: Purportedly, these tax cuts were not for the sake of enriching corporate management but for employing American workers — hence the word “jobs” in all three titles. These companies would take the extra money and invest it in the workforce, creating new and better opportunities for regular people.
That is not what happened. In reality, a new academic study finds, a significant fraction of recent corporate tax breaks simply went to increased pay for top corporate executives. The paper, currently undergoing peer review before publication, is the first comprehensive academic examination of its kind. Its author, Grinnell College assistant professor of economics Eric Ohrn, used a database of top-level compensation at publicly traded U.S. firms to analyze the tax cuts’ impact on executive pay.
Ohrn examined the pay of 31,879 executives at 2,794 publicly traded companies from 1998 to 2012. His results showed that for every dollar in reduced corporate taxes from two types of tax cuts, compensation for the top five executives at the companies increased by 15 to 19 cents.
Though there is little data readily available on lower-ranking executive pay, higher pay at the top almost certainly pulls up executive compensation on the corporate rungs just underneath. Dean Baker, senior economist at the Center for Economic and Policy Research in Washington, D.C., points out that if the next 20 executives at each company in Ohrn’s study received in aggregate half the increased pay of the top five executives, it would mean that “between 22% and 37% of the money gained from a tax break went to 25 of the highest-paid people in the corporate hierarchy.”
The amount of money at stake is gigantic.
American business has for decades been conducting a war against corporate taxation. The rationale for cuts is always the same: Companies and their favored politicians claim that they have opportunities to make investments in new technologies and plants that would lead to better jobs and higher pay for workers. Unfortunately, thanks to overbearing corporate taxes, they simply can’t afford to do it.
Neither part of this story is true. There is no discernible connection between levels of corporate profits and investment. Moreover, even if there were, it would likely make little difference for average workers: Higher productivity led to higher median wages for regular people during the three decades after World War II, but that link was broken in the 1970s. Since then, productivity has continually increased but has barely shown up in the paychecks of regular people. Instead, the greater wealth has gone to those at the top of the pay scale, such as corporate executives.
But the fact that the case for corporate tax cuts makes no sense has not impeded its success. During the 1960s, the federal government took in an average of about 3.7 percent of the gross domestic product via corporate income taxes. By the late 1990s, it had fallen to 2.1 percent. The Congressional Budget Office now estimates that it will average 1.3 percent from 2021-2030 — that is, 0.8 percentage points of GDP less than 20 years ago.
The decrease may not seem like much on its face, but the CBO projects that the total U.S. GDP over the next 10 years will be $273 trillion. If the corporate income tax were still at the 2.1 percent of GDP level of the late 1990s, it would bring in $5.73 trillion. At the current projected rate of 1.3 percent, it will be $3.55 trillion. Corporations will save $2.18 trillion.
Neither part of this story is true. There is no discernible connection between levels of corporate profits and investment. Moreover, even if there were, it would likely make little difference for average workers: Higher productivity led to higher median wages for regular people during the three decades after World War II, but that link was broken in the 1970s. Since then, productivity has continually increased but has barely shown up in the paychecks of regular people. Instead, the greater wealth has gone to those at the top of the pay scale, such as corporate executives.
But the fact that the case for corporate tax cuts makes no sense has not impeded its success. During the 1960s, the federal government took in an average of about 3.7 percent of the gross domestic product via corporate income taxes. By the late 1990s, it had fallen to 2.1 percent. The Congressional Budget Office now estimates that it will average 1.3 percent from 2021-2030 — that is, 0.8 percentage points of GDP less than 20 years ago.
The decrease may not seem like much on its face, but the CBO projects that the total U.S. GDP over the next 10 years will be $273 trillion. If the corporate income tax were still at the 2.1 percent of GDP level of the late 1990s, it would bring in $5.73 trillion. At the current projected rate of 1.3 percent, it will be $3.55 trillion. Corporations will save $2.18 trillion.
by Jon Schwarz, The Intercept | Read more:
Image: Soohee Cho/The Intercept, Getty Images[ed. No surprise here. And, since Biden's infrastructure bill is supposed to be paid for with higher corporate taxes, we're already seeing expected pushback (obviously from Republicans, but also from at least one Dem). Here's Joe Manchin today: "In a radio interview with West Virginia's MetroNews, Manchin said raising the corporate tax rate to 28 percent, as envisioned in the plan, is just too high, though he did say he could get behind a hike to 25 percent.
The senator claimed he wasn't alone, either. "There's six or seven other Democrats who feel very strongly about this," he said. "We have to be competitive, and we're not going to throw caution to the wind."]
The senator claimed he wasn't alone, either. "There's six or seven other Democrats who feel very strongly about this," he said. "We have to be competitive, and we're not going to throw caution to the wind."]
