The other day I came across a link to an article from the website Salon called "Robert Reich: 5 reasons why Trump’s corporate tax cut is appallingly dumb." I was intrigued since I thought the President's tax proposal would be quite beneficial to the United States' economy; so I followed the link and read through the article. The first thing to note about this article is that it was a repost of a blog post by one Robert Reich who, according to his website, is
"Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration...and...is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, INEQUALITY FOR ALL."(1)
This man is clearly well educated and has a copious amount of experience that he could draw from in order to write this post. However, the five points Dr. Reich makes are myopic, misleading and/or simply untrue.
The first point Dr. Reich makes is that the United States does not have a very high effective corporate tax rate, saying that “the typical corporation pays an effective tax rate of 27.9 percent, only a tad higher than the average of 27.7 percent among advanced nations.”(1)
He references an article published by Punditfact in September 2014 to back up his point. However, according to a study published by the Congressional Budget Office last March, the United States has the third highest average corporate tax rate of G20 countries, behind only Indonesia and Argentina.(2) Also, according to a study published in October of 2013, the the average effective tax rate for US corporations from 2004 to 2010 was 36.2%.(3) As this evidence shows, not only is Dr. Reich incorrect about US corporate effective tax rates but also that his point is not an actual critique of President Trump’s tax proposal.
Dr. Reich’s second point was that these tax cuts would “bust the federal budget.”(1) He references the Joint Committee on Taxation saying that the tax cuts will “reduce federal revenue by $2 trillion over 10 years.”(1) First off, as someone who is quite libertarian when it comes to economic policy, I do not see this as a problem because it could force the federal government to downsize which I would argue is a good thing. Second of all, I am not convinced that the numbers that Dr. Reich mentions are accurate since not only was the article he linked to under this point not from the Joint Committee on Taxation but from the New York TImes, but also nowhere in that article does the phrase “$2 trillion over 10 years” or anything even closely resembling it appear. The best thing I could find to back up Dr. Reich’s point in that article was this:
“The nonpartisan Joint Committee on Taxation said Tuesday that a big cut in corporate taxes — even if it is temporary — would add to long-term budget deficits”(4)
which is very vague and doesn’t say specifically $2 Trillion. As a result of this information, I have come to the conclusion that this point is not a valid critique of President Trump’s tax proposal.
His third point was that tax cuts do not “generate enough new revenue to wipe out any increase in the budget deficit.”(1) He cites a publication published by the Congressional Research Service in September of 2012 which he says “found no evidence [tax cuts] generate economic growth.”(1) However, the actual report says
“The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth.”(5)
This is important because this publication is dealing with top tax rates, not corporate tax rates so it cannot be used as evidence that cutting corporate tax rates will not increase tax revenue. On the contrary, there is evidence from the Bureau of Economic Analysis and the Bureau of Labor Statistics to show that President Reagan's tax cuts actually benefited the US economy. According to a publication from the Pacific Research Institute in May of 2015
“Figure 2 shows quarterly real economic growth rates...rocketed up as soon as the [Reagan] tax cuts went into effect. Average annual real GDP growth for the years 1983 through 1989 was 4.4%. Figure 3 shows the same story with employment, with the employment-to-population ratio cratering as the tax cuts went in effect before beginning a six percentage point climb through 1990.”(6)
It is important to note that the information presented in “Figure 2” is from the Bureau of Economic Analysis and the information presented in “Figure 3” is from the Bureau of Labor Statistics. This evidence clearly counteracts Dr. Reich’s point and as such, it is not a valid critique of President Trump’s tax proposal.
The fourth point brought up by Dr. Reich is that “American corporations don’t need a tax cut. They’re already hugely competitive as measured by their profits – which are at near record highs.”(1) While the information Dr. Reich cites may be true, his conclusion is not. First of all, according to a special report from the Tax Foundation in September of 2011, US companies are at a global competitive disadvantage because they have a higher tax rate. “At seven to eight percentage points greater than the world average, the U.S. [effective tax rate]represents a substantial competitive disadvantage for U.S. firms selling in international markets.”(7) This evidence is a clear refutation of Dr. Reich’s claim and as such, his point is not a valid critique of President Trump’s tax proposal.
Finally, Dr. Reich argues that corporations will use their increased profits to “buy back their shares of stock and to buy other companies.”(1) He sites a special report from Reuters published last November that backs up his point However, this argument does not take into account the scale of the President’s tax cut. With the report he cited, Dr. Reich seems to be trying to get people to think that this tax cut will only affect large companies. However, this cut will affect all businesses, according to a handout the white house gave to reporters.(8) This is an important distinction because it means that this tax cut will affect more than just the large, publicly traded companies that the report from Reuters addresses. This tax cut will be affecting small businesses and private corporations which means that they will have increased profits which would lead to their expansion which would benefit the economy. With this evidence in mind, it is clear that Dr. Reich’s final point is not a valid critique of the President’s tax proposal.
In conclusion, after looking critically at what Dr. Reich argues, I have come to the conclusion that his points are not consistent with the facts and as such, I think his argument, to use his own words, are “truly dumb.”(1)
Sources:
