Corporate tax rates must be lowered in order to create economic growth: this is a key argument made by CEOs and their political allies while they push for a fiscal cliff deal. That was in the Bowles-Simpson plan, and members of Fix the Debt are pushing for that too, along with a territorial tax system.
But top Republicans and Democrats agree the best thing for the economy in the long term is to simplify the Tax Code, reduce rates and end loopholes—not just for individuals but also for corporations. This is tough, complex stuff, but a consensus is slowly emerging.
Never mind for a moment the obvious problem with lowering tax rates as a means of fixing the long-term debt. Would allowing corporations to pay less taxes really mean more hiring?
Luckily we have some interesting case studies. Several of the CEOs pushing this idea actually run companies that pay extremely low corporate tax rates, well below the statutory 35 percent rate—or pay none at all. So, via the invaluable Institute for Policy Studies, let’s see what kind of job creation these folks did while enjoying very low corporate tax rates:
1. Randall Stephenson, AT&T
Average effective federal corporate income tax rate, 2009-2011: 6.3%
U.S. job layoffs since 2007: 54,000
2. Lowell McAdam, Verizon
Average effective federal corporate income tax rate, 2009-2011: -3.3%
U.S. job layoffs since 2007: 30,000
3. David Cote, Honeywell
Average effective federal corporate income tax rate, 2009-2011: -14.8%
U.S. job layoffs since 2007: 4,000
4. Kenneth Frazier, Merck
Average effective federal corporate income tax rate, 2009-2011: 13.2%
U.S. job layoffs since 2007: 13,000
5. Terry Lundgren, Macy’s
Average effective federal corporate income tax rate, 2009-2011: 20.7%
U.S. job layoffs since 2007: 7,000
Looking at these numbers, there isn’t much of a correlation between low corporate tax rates and hiring, to say the least. And beyond these specific examples, the idea that business aren’t hiring because of burdensome tax rates is belied by the fact there are record-breaking corporate profits at the moment, and yet unemployment remains stubbornly high.
One could actually propose an alternate theory, where corporate greed leads to both a desire to pay less taxes, and a proclivity to reduce headcounts whenever possible. It’s a rational strategy for them, but it doesn’t mean we should help to advance it.
While CEOs fight for lower corporate taxes, Michigan Governor Rick Snyder is crushing union workers. Allison Kilkenny reports on resistance in Lansing.