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Wednesday, 30 August 2017 06:18

Corporate Tax Cuts Don't Mean More Jobs

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ceopayCutting corporate tax cuts do not necessarily translate into increased jobs. (Image: IPS)

A just-released report by the Institute for Policy Studies (IPS) -- a DC think tank providing analysis on peace and economic, racial, and climate justice -- provides evidence that tax cuts for corporations do not necessarily correlate with an increase in jobs. Additionally, increased CEO compensation does not routinely result in increased employment. These are important findings, because the number one rationale that politicians use to justify corporate tax cuts is that the increased business revenue will lead to decreased unemployment.

The IPS report, entitled "Corporate Tax Cuts Boost CEO Pay, Not Jobs," had several key conclusions, including:

  • Tax breaks did not spur job creation

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

  • Job-cutting firms spent tax savings on buybacks, which inflated CEO pay

The August 30 report refutes the claim being made by Trump, who is now formally beginning his "tax reform" campaign, that reducing the corporate tax rate from 35 percent to 15 percent will result in increased and higher-paying jobs.

A CNBC article noted that job creation is the perennial public relations mantra for trying to create public support for tax cuts:

Supporters of cutting corporate taxes argue that those savings would free up more capital for investment, allowing companies to expand operations and hire more workers.

That was the argument then-candidate Trump offered last year when he proposed "reducing taxes tremendously" for both small and big businesses.

"That's going to be a job creator like we haven't seen since Ronald Reagan," Trump said in the first presidential debate in September 2016. "It's going to be a beautiful thing to watch. Companies will come. They will build. They will expand. New companies will start. And I look very, very much forward to doing it."

As examples of how erroneous this sales point is, the IPS report offers specific data:

  • America’s 92 most consistently profitable tax-dodging firms registered median jobgrowth 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

  • 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 made $14.9 million on average, 14 percent more than the $13.1 million for typical S&P 500 CEOs.

The report goes on to provide much more evidence debunking the tantalizing claim that more tax cuts for business translate into more jobs. Take Secretary of State Rex Tillerson, for example, who, during his tenure at ExxonMobil, received a sizeable raise just as the corporation dodged its taxes and reduced jobs:

  • The oil giant paid an effective tax rate of only 13.6 percent during the 2008-2015 period, at the same time cutting more than a third of its global workforce (the company does not reveal U.S. jobs data). After pumping nearly $146 billion into stock buybacks, Exxon CEO Rex Tillerson, now the U.S. secretary of state, took home $27.4 million in total compensation in 2016, 22 percent more than he collected in 2008.

Sarah Anderson, who is co-author with Sam Pizzigati of the IPS report, writes in an August 30 New York Times op-ed:

“The arithmetic for us is simple,” AT&T’s chief executive, Randall Stephenson, said on CNBC in May. If Congress were to cut the 35 percent tax on corporate profits to 20 percent, he declared, “I know exactly what AT&T would do — we’d invest more” in the United States.

Every $1 billion in tax savings would create 7,000 well-paying jobs, Mr. Stephenson went on to say. The correlation between lower corporate taxes and more jobs, he assured viewers, runs “very, very tight....”

According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes. (The company argues that it pays significant taxes, at a rate close to 34 percent in recent years, but that includes deferred taxes and state and local levies.)

Despite the enormous savings AT&T has realized, the company has been downsizing. Although it hires thousands of people a year, the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016, accounting for acquisitions and spinoffs each involving more than 2,000 workers.

According to IPS, many corporations use the surplus funds from tax cuts to buy back stock and increase its value. They also frequently use tax cuts to increase profitability. These favorable financial results then are used to justify higher CEO salaries and benefits -- not, primarily, to create jobs, the report finds.

Large tax cuts are a gift to US corporations, not a magical job generator.