Corporate Tax Cuts: Rhetoric and Reality

Right now, most eyes are on Congressional Republicans and their last-ditch effort to destroy the Affordable Care Act, but those eyes will soon turn to the various tax “reform” efforts waiting in the wings.

Bookies are probably taking odds on the likelihood of Congress actually managing to reform the tax code. What constitutes reform, of course, is in the eye (or pocketbook) of the beholder–and that brings us to the arguments about corporate tax rates.

Proponents of a lower tax rate for corporations–Paul Ryan, President Trump and most Congressional Republicans–argue that reducing the rate will spur job creation. Opponents see no evidence for that assertion, and note that few corporations actually pay the current rate now–thanks to various credits and deductions, most of them pay an effective rate that is considerably lower.

Since the argument for reducing corporate taxes rests primarily on the assertion that such a reduction will translate into jobs, the Institute for Policy Studies researched that claim.

To investigate this claim, we set out to analyze the job-creating performance of the 92 publicly held American corporations that reported a U.S. profit every year from 2008 through 2015 and paid less than 20 percent of these earnings in federal corporate income tax.

These 92 corporations offer an ideal test for the proposition that lower tax rates encourage corporations to create jobs. By exploiting loopholes in the existing federal tax code, all these firms have reduced their tax rates to the level that Speaker Ryan and President Trump claim will stimulate job creation. Did these reduced tax rates actually lead to greater employment within the 92 firms? We crunched data available from the Institute on Taxation and Economic Policy to find the answer.

You can probably guess what the researchers found.

Tax breaks did not spur job creation.

  • America’s 92 most consistently profitable tax-dodging firms registered median job growth of negative 1 percent between 2008 and 2016. The job growth rate over those same years among U.S. private sector firms as a whole: 6 percent.
  • More than half of the 92 tax-avoiders, 48 firms in all, eliminated jobs between 2008 and 2016, downsizing by a combined total of 483,000 positions. 

Tax-dodging corporations paid their CEOs more than other big firms.

  • Average CEO pay among the 92 firms rose 18 percent, to $13.4 million in real terms, between 2008 and 2016, compared to a 13 percent increase among S&P 500 CEOs. U.S. private sector worker pay increased by only 4 percent during this period.
  • CEOs at the 48 job-slashing companies within our 92-firm sample pocketed even larger paychecks. In 2016 they grabbed $14.9 million on average, 14 percent more than the $13.1 million for typical S&P 500 CEOs.

Many of the firms that eliminated jobs plowed their savings into stock-buybacks; as the researchers pointed out, such buybacks inflate the value of the stocks and stock options that are a routine part of executive pay packages. The top ten “job-cutters” in the research sample spent $45 billion dollars over the last nine years on stock repurchases– “six times as much as the Standard & Poore 500 corporate average.”

The report identifies some of the worst corporate offenders (AT&T, Exxon-Mobil, GE and several others), all of which have effective tax rates lower than the goal set by Ryan and his crew, and all of which shed employees while raising executive pay.

As the researchers conclude:

Our nation also desperately needs a tax reform debate that dispenses with the fantastical notion that corporate tax cuts will automatically create good jobs for American workers. Policy makers should be focusing instead on ensuring that corporate America pays its fair share of the cost of job-creating public investments in infrastructure and other urgent needs.

A solid first step would be to eliminate loopholes that grant preferential treatment of foreign profits. U.S. corporations should have to pay what they owe on their current offshore holdings and not be allowed to defer these payments indefinitely. By continuing to allow offshore tax sheltering, policy makers are shifting the tax burden onto ordinary Americans and creating a disincentive for job creation in the United States.

As numerous economists and businesspeople have pointed out, jobs are created in response to increased demand for goods and services.

Increases in demand occur when significant numbers of working and middle-class people have disposable income–not when a small group of already obscenely wealthy CEO’s get paid even more.

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Liberals On Campus

A few days ago, the editorial page editor of the Indianapolis Star wrote an article in which he counseled a “young conservative” on how to navigate Indiana University’s “left-wing” campus in Bloomington.

There are so many things wrong with the consistent right wing trope about “lefty” professors, the perceived persecution of their conservative colleagues, and the imagined “indoctrination” of their students–where to begin?

For one thing, these critics are painting with a very broad brush. The so-called “elite” colleges–Harvard, Yale, etc.–probably do have faculties that are disproportionately politically liberal, but there are thousands of colleges and universities in the U.S. that most definitely do not fit that stereotype. Many of them are religious, and others are small and medium-sized institutions reflective of the communities in which they are located; very few of them are bastions of liberal brainwashing.

What this characterization of the “liberal” professorate actually reveals is the unacknowledged (and often unconscious) extremism of those who employ it. As “conservatives” have become more radical and doctrinaire, they have applied the term “liberal” more and more broadly. Today, “liberal” describes anyone who accepts the theory of evolution and the scientific consensus on climate change, anyone who believes  (along with some 80% of NRA members) that we need more rigorous background checks for gun buyers, anyone who supports (along with numerous faith groups and a majority of Americans) a woman’s right to control her own reproduction; and (again with a majority of Americans) anyone who condemns racism and other forms of bigotry.

Positions that used to be considered mainstream and uncontroversial–positions that were held by Republicans as well as Democrats–have become markers of political liberalism.

I’ve taught at the university level for the past twenty years, and if I had to identify one “ideology” that virtually all my colleagues have in common, it wouldn’t be a political “ism” at all; it would be a belief in the importance of data and evidence. What distinguishes academia –what makes its denizens “liberal” in the original sense of that word–is willingness to examine one’s own preconceptions and change positions when credible research proves those preconceptions wrong.

One of the enduring contributions of the period we call the Enlightenment was the scientific method, and what the early American colonists called “the new learning.” Before the emergence of science and empiricism, education began with “biblical truth,” and consisted of studying how “learned men” had explained and justified that truth. You began with the answer and learned how to confirm it. When science came along, it flipped the process: first, you asked  questions, and then, through repeated rigorous experimentation and observation of the world around you, you tried to find answers that others could replicate.

Today, political liberals and conservatives are both prone to start with the answers, and to become angry when data and fact don’t support those answers. The mission of the academy is inconsistent with political ideologies of all kinds; that mission is to ask questions, evaluate data, and follow the evidence to whatever conclusion it requires.

If the contemporary definition of a liberal is someone who accepts the scientific method and the importance of verifiable fact, then I suppose most of us are liberal. If teaching our students to follow the evidence is indoctrination, then we plead guilty.

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A Disquieting Possibility

Could climate change be making us fat? Politico has published an article from a series on the future of health that suggests the answer may be yes.

The article began by describing a 1998 experiment in which scientists made algae grow faster in order to provide more food for zooplankton. They increased the algae by shining more light onto them, and gave the  zooplankton more to eat. But rather than flourishing, as expected, they began struggling just to survive.

The increased light was making the algae grow faster, but they ended up containing fewer of the nutrients the zooplankton needed to thrive. By speeding up their growth, the researchers had essentially turned the algae into junk food. The zooplankton had plenty to eat, but their food was less nutritious, and so they were starving.

A mathematician and biologist named Loladze was intrigued–and spent the next 17 years exploring the obvious question:

Could the same problem affect grass and cows? What about rice and people? “It was kind of a watershed moment for me when I started thinking about human nutrition,” he said.

In the outside world, the problem isn’t that plants are suddenly getting more light: It’s that for years, they’ve been getting more carbon dioxide. Plants rely on both light and carbon dioxide to grow. If shining more light results in faster-growing, less nutritious algae—junk-food algae whose ratio of sugar to nutrients was out of whack—then it seemed logical to assume that ramping up carbon dioxide might do the same. And it could also be playing out in plants all over the planet. What might that mean for the plants that people eat?

What Loladze found is that scientists simply didn’t know. It was already well documented that CO2levels were rising in the atmosphere, but he was astonished at how little research had been done on how it affected the quality of the plants we eat. For the next 17 years, as he pursued his math career, Loladze scoured the scientific literature for any studies and data he could find. The results, as he collected them, all seemed to point in the same direction: The junk-food effect he had learned about in that Arizona lab also appeared to be occurring in fields and forests around the world. “Every leaf and every grass blade on earth makes more and more sugars as CO2 levels keep rising,” Loladze said. “We are witnessing the greatest injection of carbohydrates into the biosphere in human history―[an] injection that dilutes other nutrients in our food supply.”

Evidently, agricultural researchers have known for some time that many foods have been getting less nutritious. The mineral, vitamin and protein content of fruits and vegetables has dropped steadily over the past 50 years. Researchers had attributed the drop to the fact that farmers have been breeding crops for higher yields, rather than nutrition–that the “significant” decline in everything from protein to calcium, iron and vitamin C could mostly be explained by the varieties farmers were choosing to grow.

More recent research suggests otherwise.

Across nearly 130 varieties of plants and more than 15,000 samples collected from experiments over the past three decades, the overall concentration of minerals like calcium, magnesium, potassium, zinc and iron had dropped by 8 percent on average. The ratio of carbohydrates to minerals was going up. The plants, like the algae, were becoming junk food.

Even climate change deniers concede that CO2 levels have risen. Plants require CO2, so the assumption has been that these higher levels were actually good for agriculture. The emerging research suggest that at certain levels, CO2 depletes the nutritional value of the crops–which contributes to the obesity epidemic, among other things.

The Politico article is lengthy, but it’s well worth reading. And pondering.

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YES!

Richard Cohen recently had an opinion piece in the Washington Post addressing the undeniable fact that Americans increasingly occupy information “bubbles”–and that we rarely, if ever, intersect with the very different bubbles occupied by others.

He began by describing his long-ago relationship with someone named Charlie. He and Charlie came from very different backgrounds and had very different beliefs; their close friendship was an artifact of the draft–they served together in the Army.

Cohen said he thought about that experience and that friendship when he watched people rescue others from the devastation in Houston.

The storm, the flooding — the utter disaster — gave people a common problem and a common goal. It also reduced them to common socioeconomic status. After a while, people in trouble all look the same — wet, dirty, tired, often dazed. The storm throws them together and reduces them to the essential: people needing help, people looking to help. People. That’s it. People.

The army had done much the same leveling of differences:

We all had the same goal, which was to get through training. We all dressed alike, ate the same food, showered together and, over time, became a single unit. I mostly hated the Army, but I mostly loved those guys.

Today’s volunteer army doesn’t provide the same experience, and Cohen is realist enough to concede that there is little likelihood of reinstating the draft. (As he puts it, a generation of gluten-avoiders is not going to happily share a latrine with strangers.) Draft or no draft, however, America needs a mechanism that requires dissimilar people to interact, to actually get to know each other.

 But maybe some sort of national service would work — something lasting a year or so. Other nations do that — and they’re not the goose-stepping ones, either. Denmark, Sweden, Austria and Norway have versions of compulsory service….

We need a national service that throws us all together, the urban with the rural, the Fox News types with the MSNBC crowd. That way, Americans can get to know Americans and learn — as previous generations did — that we are all Americans. A common plight and a common goal is how Houstonians got to know Houstonians. A different plight and a different goal is how I got to know Charlie.

A couple of years ago, I worked with one of my graduate students on just such a proposal–pie in the sky as it was–a new G.I. Bill focused upon producing engaged and informed citizens through civilian service. As we argued, there are many ways in which a national program might incentivize the acquisition of civic literacy and change the civic culture.

We proposed a voluntary National Public Service program for high school graduates who would be paid minimum wage during a one year tour of duty. At the end of that year, assuming satisfaction of the requirements, the students would receive stipends sufficient to pay tuition, room and board for two years at a public college or trade school. The public service requirement would be satisfied through employment with a government agency or not-for-profit organization (like public schools or Goodwill Industries); in addition, students would be required to attend and pass a civics course to be developed by the U.S. Department of Education in conjunction with the Campaign for the Civic Mission of the Schools, thus linking service with civic knowledge.

We noted that the groundwork for such a program is already in place through existing programs like AmeriCorps that are in high demand, but limited by funding.

What sorts of outcomes might we expect? Since such a program is likely to be most attractive to those struggling to afford higher education, we could expect broader participation from those whose voices are largely missing from today’s civic conversation. A better-educated population should engage in better, more nuanced policy debates, leading (hopefully) to more thoughtful policy choices. Ultimately, we might even see more meaningful and issue-oriented political campaigns, with less of the intemperate rhetoric that characterizes messages crafted to appeal to uninformed voters.

As an added benefit, a program of this sort would also have an enormous and salutary impact on the level of student debt–currently a huge drag on economic growth.

At a minimum, national service should burst some very stubborn bubbles. At best, it would connect participants to the multi-colored, multi-ethnic, multi-everything fabric that is the strength and glory of the real America.

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Playing The Economic Development Lottery

Amazon’s recent announcement that it would be “accepting proposals” for a secondary headquarters has set off a predictable–and unfortunate– competition by cities all over the country.

“Pick me! Pick me!” Even Indianapolis and Fishers have teamed up for the hunt.

The Brookings Institution gets the dynamics right.

In the world of state and local economic development, Amazon is a whale. The possibility of 50,000 highly-paid jobs for professionals at a new $5 billion development is too tempting to pass up for any metro area with even the slimmest hope of courting one of the largest and most profitable companies in the world. Amazon’s unsubtle hint that tax incentives will play a big role in its decision helps ensure it will receive one of the biggest packages in history. Already, cities and states have rushed to announce their hope to entice Amazon with their distinct value proposition, and—in all likelihood—breathtaking handouts.

This begs important questions about the wisdom of state and local economic development strategies and their ability to remain focused on addressing the real challenges American communities face today.

Amazon’s shameless invitation to see who will offer the biggest bribe does indeed raise “important questions” about standard economic development practices–practices which assume a zero-sum competition to entice employers to relocate to the redevelopment officer’s city or state.

That competition is expensive for bidders, most of whom have no real prospect of securing the prize, and even more expensive for taxpayers of the eventual winner. As the Brookings article points out, Amazon undoubtedly narrowed its choices to two or three locations before it ever  announced its search for a headquarters site.

Amazon’s faux competition will lure one otherwise enviable place into handing over a huge amount of its taxpayers’ money to a fabulously wealthy corporation for something that place could have gotten for free.

As anyone who has ever been involved in one of these efforts can attest, cities will waste significant staff time calculating and crafting proposals, time and effort that could have gone into solving other problems.

It is past time to revisit economic development policies that center on these expensive efforts to lure employer A from location B to location C. Instead, we need to take a hard look at the strengths and weaknesses of our local economy, and determine what measures would help us grow the employers who are already here.

What are the jobs that are open? Why aren’t they being filled? Are there “skill gaps” keeping jobless Hoosiers from filling them? If so, what can we do to provide unemployed workers with the necessary skills? Is the problem transportation–the inability of workers to get to the places they are needed? Can we improve public transportation to solve that problem?

In other words, what are the unmet needs of Hoosier employers and workers, and how can we meet those needs?

Political figures love to cut ribbons and announce that manufacturer A or retailer B is moving to town and hiring X number of employees. Those announcements rarely include enumerations of the costly enticements (bribes) that accompanied the decision to locate here: tax abatements, infrastructure improvements, training grants and the like.

Efforts to grow the industries and other enterprises that are already here would not only be more cost-effective, they would also be fairer. These are employers who are already part of our community, after all–already paying taxes, already hiring local residents. They may not be as glamorous as Amazon, but in the real-world scheme of things, they’re much more important.

Amazon may be a whale, but we don’t have to emulate Ahab.

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