Democrats have wrongly argued that the Tax Cuts and Jobs Act has enabled corporations to avoid paying their taxes. Far-left politicians like Representative Alexandria Ocasio Cortez (D-NY) and self-avowed socialist Bernie Sanders (I-Vt.) have repeatedly raised this point.
Democrats on the Ways and Means Committee are now following this theme with a hearing called “The Disappearing Corporate Income Tax.”
There are two fundamental problems with the Democrat criticism. First, Democrats ignore the many benefits to workers and the economy from the Trump Tax Cuts. Secondly, they ignore the simple reason that some corporations are paying less than the statutory 21 percent rate – the existence of numerous credits and deductions that are designed to promote investment and job creation.
It is also important to note that companies are not using “loopholes” to lower their tax liability. They are following the law exactly as written and are paying state and local taxes as well as payroll taxes – sometimes totaling billions of dollars per year.
Many of the tax provisions that lower corporations’ effective rates are non-controversial and have bipartisan support. For instance, businesses are currently allowed to immediately deduct the cost of business assets purchased. This provision, known as full business expensing, has been supported by the Obama White House. In fact, as noted in an Obama White House document, expensing is designed to lower the effective tax rate of a business:
“A policy of allowing an immediate deduction (or ‘expensing of investment costs’) has an alternative rationale, which is to lower the effective tax rate on income derived from business investments, and thereby encourage additional demand for capital goods.”
The Organisation for Economic Co-operation and Development (OECD) has recognized that full business expensing increases GDP.
Similarly, the R&D credit was first created under President Reagan as a temporary provision and was extended by Congress more than a dozen times. It was made permanent in 2015 on a bipartisan basis and was signed into law by President Obama.
In advocating for this provision, the Obama White House noted that every $1 in tax reduction from the R&D credit creates $2 in benefits to the economy and that 80 percent of the credit is directly attributable to salaries of U.S. workers performing U.S. based research.
While the tax cuts did lower the corporate rate from 35 percent to 21 percent, this brought the U.S. rate in line with the rest of the developed world. The U.S. rate is 25.89 percent after accounting for the state corporate tax, while the average rate in the 36-country OECD is 23.52 percent.
This tax cut has also benefited the American economy and workers. Businesses have created 100,000 jobs in 34 of the 38 months that Trump has been President and the unemployment rate has been below 4 percent for 23 consecutive months. Wage growth has been at or above 3 percent for the past 18 months, according to the Bureau of Labor Statistics (BLS).
Americans are also seeing their savings increase. When Donald Trump was elected President, the Dow Jones sat at 18,332. It is now at above 29,000, an increase of more than 60 percent. This stock market growth benefits the 100 million 401(k)s, the 46.4 million households that have an individual retirement account, and the nearly $4 trillion in public pension funds, half of which is invested in stocks.
This good news is not just anecdotal – there are numerous examples of companies providing increased benefits or pay raises to their employees and of utility companies reducing rates.
Businesses have responded to the tax cuts by creating new employee benefit programs including adoption programs, workforce development programs, and education programs. For example:
- Walmart and Lowes now provide $5,000 to help cover the cost of adopting a child.
- Express Scripts in Missouri has created a $30 million education fund for their employees’ children.
- Boeing provided $100 million in workforce development programs
- McDonald’s employees who work just 15 hours a week, receive $1,500 worth of tuition assistance every year per year.
Companies have also reduced utility bills for Americans across the country. Utility companies in all 50 states are passing on the tax savings in the form of lower rates for customers. This means lower electric bills, lower gas bills, and lower water bills for Americans than if the corporate rate cut had not occurred. For example:
- Arizona Public Service reduced rates by $119 million for its 2.7 million customers.
- Entergy Louisiana returned $105 million in savings to consumers.
- Kansas City Power and Light returned $100 million in annual savings to customers.
- Massachusetts-based Unitil gave $1.6 million in rebates to customers.
Businesses have increased wages and bonuses to their employees. For example:
- Wells Fargo raised base wages from $13.50 to $15.00 per hour.
- AT&T provided $1,000 bonuses to 200,000 employees.
- Cigna raised base wages to $16 per hour.
- Apple provided $2,500 employee bonuses in the form of restricted stock.