Cutting Corporate Taxes Won’t Help the Middle Class

July 17th, 2014 at 9:59 am

Sounds obvious, I guess, but the idea gets taken too seriously.  Over at PostEverything, I explore two channels by which lower corporate taxes could reach the middle on down: supply-side trickle down, and you know my views on that particular vial of fairy dust, and direct lowering of tax liability for the middle class, to which I bring evidence from CBO of how that wouldn’t work either.

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10 comments in reply to "Cutting Corporate Taxes Won’t Help the Middle Class"

  1. Robert Buttons says:

    Fed policy is essentially trickle down: give the money to Wall St banks and rich investors to create a “wealth effect”. Govt spending is trickle down: Take money from local communities, send it to a central bureaucracy for distribution, primarily, to connected govt contractors.

    • Aaron says:

      I’d say you’re essentially right on the first point. I would disagree with the point about general government spending (fiscal policy). You are right obviously that money gets collected (taxes) and disbursed through bureaucracies. However, most of the time that is real dollars in people’s pockets – SNAP, EITC, other tax credits, defense spending, Social Security, etc. That’s not “trickle down” in the usual sense of the term.

      • Robert Buttons says:

        SNAP, to be sure, is a trickle up program.It is welfare for big Ag and food companies. Check out the corporations behind FRAC, a SNAP promoting NGO:

        Tyson, Kraft, Kellogg, Yum!, ConAgra, General Mills, Mars, Nestle, etc are all on board

  2. Smith says:

    I would be firmly against any revenue neutral change in corporate taxes. There is no good reason to lower taxes on corporations. Because many large corporations are sitting on record amounts of cash and using them for buybacks, it is particularly galling not to consider closing loopholes and raising rates and passing legislation to discourage moving operations and profits overseas. Keep in mind the significant tax increases need not be levied on small businesses (defined as a few million dollars or more). But large multinationals, conglomerates, monopolies, big oil, big pharma, too big to fail banks, making billions, should.
    Trading loopholes for lower rates does exactly what for a government needing more revenue? A middle class needing tax relief? The lower and middle class needing more government to protect the environment and equal access to pre-school and higher education, not to mention road and bridge repair?
    When corporations can’t keep their excessive profits gained at the expense of workers low wages, perhaps they’ll learn to share.
    Global competitiveness is a phoney excuse, a race to the bottom is a losing strategy.
    Just how many billions (not an exaggeration) does a corporation have to make before they are taxed more than a two earner family making a modest if not prosperous $75,000/year (that’s $37,000 a piece and combined they come close to the top corporate rates of 35% to 39% if you count social security and all other taxes, especially blue states).
    Pretty pathetic, but lowered rates are not the answer…

  3. Larry Signor says:

    “In November of 2011, Citizens for Tax Justice released a report analyzing the federal income taxes paid by hundreds of profitable Fortune 500 corporations during the three-year period between 2008 and 2010. The report identified 78 companies that had managed to avoid paying any federal income tax in at least one year over this period. FedEx was one of these companies. The report also showed that over the three-year period as a whole, FedEx paid an effective tax rate of just 0.9 percent on nearly $4.3 billion of US profits.”

    How much lower can corporate rates get?

  4. J. Edgar Mihelic says:

    So my problem is that I am pessimistic about stopping these tax-avoidance strategies by corporations, such as the inversions that are in the news lately. Maybe I’ve just been reading too much of the WSJ, but it seems almost inevitable that the private gains / public losses will mount esp because the political system is in thrall to money.

    One possible way to go about it in my mind would be to tank the corporate rate, and then have a progressive tax for the owners of capital — wealth taxes and capital gains taxes. But even that is pie in the sky.

    • smith says:

      Taxing corporations is a way to tax and tax progressively, an entity that is wealthy.
      If Corp A makes 1 Billion and distributes profits to a million shareholders, the tax is negligible without a corporate tax.
      If Corp B makes 1 Million and distributes profits to a billionaire, the tax is higher than Corp A’s, so the smaller Corp B suffers from a competitive disadvantage.
      There may be problems with this analysis, there may be more cogent arguments for the corporate tax, but the very fact that Republicans, rich people, and conservatives (along with sellout Democrats, Obama inexplicably included), favor lower rates, should tell you
      a) It’s an important issue
      b) Lower corporate rates benefit the 1% and hurt the 99%

      There’s nothing unconstitutional about capital controls to stop inversions. There’s nothing to stop organized efforts to boycott, vote against, create referendums, start a citizens movement against those efforts.

      (corporate taxes allows tremendous government leverage over every facet of corporate operations through the use of tax breaks, not all loopholes are bad! I’d claim higher corporate taxes can be used to encourage better wage distribution, employee ownership, research and development, expansion, environmental responsiblity)

  5. Fred Donaldson says:

    The term “fiduciary duty”, as misinterpreted to mean “maximize short term profits”, clouds today’s discussions of corporate taxes, employee welfare, value of products, customer service and the relationship of a business to its community.

    A decent legal definition of “fiduciary duty” comes from

    “A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation’s board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client…When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his own benefit in relation to the subject matter. The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.”

    The fiduciary duty is not to the other executives or the other board members. The management team members are the ones with a duty to the shareholders, which could number in the millions, as corporations often remind us.

    That duty means whatever best benefits shareholders of the corporation, including maintaining the company as viable through long term vision of operating in the marketplace, needed expansion, repairs, research and good labor morale to insure a viable and effective workforce. It also means investing in growth, not extra goodies for the fiduciary, and also demonstration of concern for actions that will affect the entire community, which again may be composed of so many shareholders.

    Fiduciary duty among companies should not mean avoiding taxes, which forces shareholders pay higher personal taxes to offset the loss. It should not mean bonuses for management that only meets and never improves, while cutting the pay of its workers/often shareholders and lowering their morale and productivity.

    I was in senior management of a company that believed at the highest level in maximizing short term (next quarter to three years out) profits above all else, in my opinion, and the bankruptcy which resulted, ultimately served no shareholder interest and breached fiduciary duty in the worst way – destruction of shareholder assets.

    In a broader sense U.S. corporations’ management can also act together to improve the nation of shareholders they cumulatively represent, or they can continue to slowly destroy the public welfare and the long term interests of their shareholders. Perhaps, the U.S. Chamber might adopt this “We Help America” slogan, and mean it.