Fool Me Once: Why Another Corporate Tax Cut Won’t Boost the Economy

February 16, 2017

The Trump administration and House Republicans are proposing a massive tax cut for corporations and the 1 percent. They falsely claim the Brady-Ryan tax plan will increase investment, reverse outsourcing, and create jobs, but this is just more of their failed “trickle-down” ideology. In this report, we argue that the evidence shows another corporate tax cut will only increase the power and wealth of rich shareholders at the expense of average Americans.

The Republicans’ underlying assumption—that corporations invest more and create more jobs only when they are relieved of burdensome tax rates—is false. American businesses already enjoy a historically low cost of capital, and they have more than enough cash on hand to invest, raise wages, and create jobs. Corporations are choosing to make dividend payments and stock buybacks instead of investing because they face a lack of competitive pressure—itself the result of power and wealth shifting toward rich shareholders. Another tax cut for the rich will only make the problem worse.

The Republican plan would also enact a “border adjustment”—a tariff on imported goods, which would hit low-income Americans the hardest. Like other aspects of the plan, Republicans have proposed this feature on the grounds that it will incentivize production in the United States. On this count, too, Brady-Ryan will fail to deliver; the tax will only succeed in punishing consumers with higher prices on imported goods. An effective job creation strategy would push in the opposite direction and reduce shareholders’ power. To do that, we need competitive pressure on firms to invest, and a stronger bargaining position for other corporate stakeholders: workers and consumers.