Paul Ryan’s Tax Reform is Code for Massive Tax Cuts for Corporations
Speaker Paul Ryan wants to enact the largest corporate tax cut in the history of the United States by lowering the corporate tax rate from 35% to 20%. He claims that the current tax structure is making American businesses noncompetitive and needs to be reformed with a massive tax cut. I do not disagree that our tax code needs to be reformed and simplified — closing loopholes and leveling the playing field — but I disagree that we need to continue to cut taxes.
First, U.S. corporations have been achieving record and continually growing profits since the mid-1980’s (when President Reagan enacted the last major corporate tax cut). U.S. corporations have been extremely competitive and successful growing their businesses domestically and globally. The current tax code has not been the barrier to growth that Ryan claims it to be when he discusses the need for tax reform.
During the same time period, American workers’ wages have stagnated and remained relatively flat for most of our population. The one exception has been corporate CEO pay, which is now up to over 300 times what their workers earn as opposed to 30–1 in 1980’s. Ryan claims that his corporate tax cut will drive higher wages for workers, but with record profits — corporations haven’t been sharing those additional earnings with their workers. Instead, these dollars have flowed to the top and Ryan’s tax cuts will produce more of the same.
Second, U.S. corporations pay an effective tax rate on average of 21%-22%*. For example, Apple paid the most corporate taxes in 2016 and reported an effective tax rate of 25.8%, which is much lower than the statutory 35% rate and the rates that Speaker Ryan often quotes when he’s discussing the need for tax reform. Apple was also the most profitable U.S. company that year with $59 billion in operating income. Many U.S. corporations are paying an even lower effective tax rate than 20%*. Also many corporations with significant profits overseas are paying a higher tax rate to those foreign countries than they are to the U.S.
Third, the share of U.S. federal tax revenues from corporations has been steadily declining. In 1952, 33% of federal tax revenues were from corporations and that was down to 9% in 2015. There are several factors driving this decline, but the reality is that with record profits — corporations are paying a much less effective tax and contributing a lower percentage to the overall federal tax revenues than in the past.
It becomes very clear that U.S. corporations do not need additional tax cuts. Speaker Ryan’s plan will continue (and intensify) the trend we’ve seen since President Reagan enacted similar tax cuts in the 1980's:
- Record profits for corporations
- Low federal effective tax rates for corporations
- Less share of overall federal tax revenues for corporations
- Exponential wage growth for top 1% of Americans
- Stagnate wages for hard working Americans
Tax reform that cuts corporate taxes isn’t going to help raise wages, create new jobs, and stop job loss to automation. We definitely do not want to over tax our corporations and businesses, but we need to find balance to help Americans climb the economic ladder and achieve prosperity. Ryan’s plan will not do that and instead just doubles-down on the same policies that created this situation in the first place. Now is not the time to enact deep tax cuts, but instead invest in American workers and help open up opportunity for all and a path to prosperity.
*As a group, 258 corporations (out of the Fortune 500) paid an effective federal income tax rate of 21.2 percent over the eight-year period, slightly over half the statutory 35 percent tax rate. Eighteen of the corporations, including General Electric, International Paper, Priceline.com and PG&E, paid no federal income tax at all over the eight-year period. A fifth of the corporations (48) paid an effective tax rate of less than 10 percent over that period. (https://itep.org/the-35-percent-corporate-tax-myth/)