Tax Reform: People, Places & Principle

Tax Reform: People, Places & Principle

Taxes are what we pay for a civilized society. Justice Oliver Wendell Holmes, Jr.

Both houses of Congress have now introduced their versions of “tax reform.” Although different in some important respects, both tax plans prioritize cutting taxes on the wealthiest individuals and corporations, with the centerpiece being a permanent cut in the corporate tax rate from 35% to 20%. The estimated cost of these cuts is at least $1.5 trillion over the next ten years. President Trump and Congressional leaders argue that we need these cuts not to help the rich, but to stimulate growth that will benefit ordinary Americans.

There is almost no empirical evidence that this kind of trickle-down tax policy will do anything but increase economic inequality and balloon the federal deficit. This will inevitably create pressure to cut domestic spending on things like healthcare, education, and public infrastructure that benefit the vast majority of American citizens and communities. Even if one did believe that trickle-down economics made sense at one point in our nation’s history, there is nothing that can justify it today. The corporate sector is thriving. As S&P Capital IQ revealed earlier this year, the companies that comprise the S&P 500 are making record profits and experiencing growth of more than 6% annually.

As a result, American companies have more money than ever. Moody’s reported that at the end of 2016, Apple, Google and Microsoft were sitting on $464 billion of cash reserves. In total, the U.S. companies Moody’s analyzed were hoarding $1.84 trillion. Clearly, access to cash is not keeping the corporate sector from increasing the pace of hiring and improving living standards for American workers. Big corporate tax cuts are unlikely to change this.

The reality is that due to automation and technology, big companies are no longer the source of large-scale employment that they once were. In 2001, General Electric had the largest market capitalization of any American company, $406 billion, and it had more than 300,000 employees. In 2016, Apple had the largest market capitalization, $582 billion, but only 116,000 employees. The four other largest companies in 2016, Alphabet, Microsoft, Amazon and Facebook, each also had a fraction of the employees companies like GE and General Motors had when they led the corporate sector. As a result, cutting corporate taxes in hopes of stimulating job growth and rising wages for middle-class Americans is hopelessly misguided.

Slashing taxes for corporations will not result in anything other than higher corporate profits, increased dividends to investors and bigger paychecks for corporate leaders. This is almost certainly why Gary Cohn, Trump’s economic policy advisor and chief architect of his tax plan, said earlier this week, “the most excited group out there are big CEOs.”

In the end, there is nothing particularly surprising about the Republicans advocating for tax cuts for big companies and the richest American families. After all, as Jane Meyer has thoroughly documented in her book, Dark Money, the party is controlled by a handful of uber-donors like the Koch brothers and the Mercer family. Senator Lindsay Graham even admitted this week that the Republicans have to pass these tax cuts or their “financial contributions will stop.”

For the rest of us, it is critical to be engaged in this fight to ensure that the tax code reflects the both the values that we care about and sound public policy. As Justice Holmes realized, the decisions we make in designing the tax code are not just economic choices. At the most basic level, these are moral choices — decisions about the kind of society that we choose to construct and in which we choose to live.

We need to reform the tax code to make it more fair and progressive, to ensure that it provides for enough revenue to make investments in the things like high-quality early childhood education and public infrastructure that we need for the long-term health of our society, and helps turn the tide in the fight against climate change by taxing carbon. Clearly, this is too much to ask of the current Congress. We are right, however, to demand that any tax reform be based on basic principles, such as no tax cuts for the rich that increase the federal deficit and lead to cuts in spending on priorities the benefit working Americans.

We are also right to demand that the tax code be designed to be fair and that it promote widespread economic opportunity. It can do this by, first, investing in people. Such investments include expanding the Earned Income Tax Credit and the Child Tax Credit, and maintaining the deductions for medical expenses and student loan interest. The tax code can also advance these values by promoting investments in the places where people live. Investments such as the deduction for state and local taxes, tax-exempt treatment for certain private activity bonds, and the Low-Income Housing, New Markets, and Historic Rehabilitation Tax Credits improve communities, expand opportunity and strengthen the real economy.

This debate is complex and it can seem daunting. The reality, however, is that we all need to be engaged. As much as the fight over whether to repeal the Affordable Care Act, the fight over the Republican plan to cut taxes for the rich is a fight for the future of America. This is an opportunity to take another step forward to living our ideals of equal opportunity, shared sacrifice and common commitment. The alternative is to slide even closer toward the establishment of a permanent aristocracy that dominates a hollow version of American democracy with its concentrated wealth and power.

Make a choice, take a stand, and take action.

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