Editor’s Note: Jeffrey Sachs is a professor and director of the Center for Sustainable Development at Columbia University. The opinions expressed in this commentary are his.
Story highlights
Jeffrey Sachs: President Trump and GOP leaders claim corporate tax cuts would boost growth and thereby pay for themselves
It's the same voodoo they've endlessly peddled, Sachs writes, and it's an ominous threat to the common good
Treasury Secretary Steve Mnuchin’s call for corporate tax cuts is akin to his request for a government plane for his honeymoon: both are adventures in avarice. Donald Trump, Mnuchin, Gary Cohn, and the key billionaire funders of the Republican Party (including the Koch brothers, Sheldon Adelson, and Robert Mercer) would each reap a fortune from the proposed tax cuts. They are out to loot the kitty, and are close to getting away with this daylight robbery.
Let’s face it: the entire corporate tax cut idea makes no sense. The federal budget deficit is already large and rising. The economy is growing without the tax cuts. Economic inequality is sky-high. The public wants higher, not lower, taxes on companies, according to the Pew Research Center. If ever there were a time to tame the Republican Party’s addiction to unaffordable tax cuts, this is it. Yet nothing tames the avarice of this White House and the Republican Party funders.
President Trump and the Republican leadership in Congress assert that corporate tax cuts would boost growth and thereby pay for themselves, the same voodoo they’ve endlessly peddled. They claim that the US corporate tax rate is so high relative to competitor nations that the US tax cut will level the global playing field and shift corporate investments to the US, boosting wages in the process. All these assertions are grossly exaggerated if not dead wrong.
The US top statutory corporate rate does seem high at 39% compared with around 30% in Germany and 24% in the United Kingdom, as reported in a recent study by the Congressional Budget Office (CBO). Yet the same study shows that the US “effective” tax rate – which factors in cost recovery allowances, interest deductibility, and expensing of R&D, in order to measure the real incentive to invest – is much lower than the statutory rate and much closer to the rates of America’s competitors. According to the CBO, the US effective tax rate is currently around 18.6%, essentially the same as the UK’s effective rate (18.7%) and not far above Germany’s effective rate (15.5%).
Under these circumstances, a deep cut of the US tax rate would be a pure provocation to other nations, which would also cut their tax rates in response to the US. And our competitors would be in a good position to do so. They could offset a new round of corporate tax cuts with a boost to their value-added tax (VAT) rates and thereby not lose budget revenues. The other countries don’t prefer that route (it’s regressive), but they would take it if the US were to force their hand.
As a result, a US corporate tax cut would not level the playing field but rather incite a race to lower corporate taxes worldwide. This would be a bonanza for the richest people in the world but a disaster for the rest of us. Average Americans would end up footing the bill as the government cuts spending on education, health care, and the environment to close the deficit caused by the corporate tax cuts.
Selling the tax cut as a job and wage booster is even more cynical. Many corporate investments these days are killing jobs of low-wage workers as robots replace production workers and as e-commerce shutters the brick-and-mortar retailers. The net effect of today’s investments on working-class jobs is therefore far from clear, and perhaps is even negative. If the real aim is to help the working class, the obvious tax policy is to expand the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), not to cut the corporate tax rate. The EITC and the CTC both put money directly into working-class pockets, rather than into billionaires’ pockets with the promise that some crumbs will fall to the workers.
The basic fact is that our country cannot afford higher deficits. The US is already veering towards a public debt crisis, with the Treasury’s debt owed to the public having roughly doubled as a share of national income during the Obama years, from around 39% percent of GDP in 2008 to around 77%of GDP in 2016. The Congressional Budget Office calculates that without changes in current policies, the debt will rise further to around 89% of GDP. With the proposed tax cuts, the public debt could easily exceed 100% of GDP.
Get our free weekly newsletter
All in all, the proposed tax cuts raise an ominous threat to the common good. The Republican Party is under the thumb of a small group of plutocrats endangering our economic future to feed their insatiable greed. Americans across the political spectrum need to join the fight to stop them now.
