How the Erosion of the Corporate Tax Base Hurts Average Joes
By Laura Kissel
In Main Street
Last week, a new report by the Center on Budget and Policy Priorities found that two-thirds of states now provide less educational funding per student than before the onset of the recession six years ago. Meanwhile, the Council on Foreign Relations recently reported that even though public infrastructure in the United States is in dire need of upgrade, the federal investment in infrastructure is now half of what it was 50 years ago.
And while there's been an uptick in the economy, with the number private sector jobs finally rebounding to where it was before the downturn began in early 2008, the overall number of jobs is still far below where it needs to be to accommodate the influx of new workers and the backlog of jobless people still looking for work. In fact, many experts are claiming that it will likely take until the end of the decade for the job market to return to pre-recession levels.
With the federal government hitting record debt levels, the debate on how to fund more public services has become more heated, with more and more people calling for increased taxes on the wealthy and the corporate sector.
A new study now gives more leverage to that argument.
Namely, a report published earlier this spring by the Center for Effective Government and National People's Action asserts the budget shortfalls in the federal government and the services cuts that have resulted could be remedied by shoring up corporate tax rates to levels of the 1970s.
During Richard Nixon's presidency, corporations paid 15% of the federal government's bills; today, that figure is below 10%. In particular, the report claims that if corporations paid taxes at the levels it did during the Richard Nixon administration, they would have paid $738 billion in 2013 as opposed to the $274 billion that they actually paid that year.
"Corporations rely on the services that taxpayers finance," says Scott Klinger, director of revenue and spending policies at the Center for Effective Government and a lead author of the report. "Yet, corporations have found so many ways not to pay taxes. It's affecting our quality of life and competitiveness as a nation."
Klinger believes tax reform in the form of a return to Nixon era tax rates would help significantly improve the nation's economy. He says that the Nixon era corporate tax rate is actually rather modest in comparison to that of earlier administrations. For instance, during the Eisenhower administration, corporations paid 30% of the federal government's bills, which would have equaled $987 billion last year. Meanwhile corporate profits have reached record levels in recent years, exceeding more than 12% of GDP, while the taxes they paid out to the federal government on those profits only comprised 1.6% of GDP.
According to the report, even a mere $200 billion in additional corporate tax revenue could create 3 million jobs, with $36 billion of that funding the restoration of 667,000 public sector positions, including school teachers, first responders, librarians and highway crews.
"Millions of Americans have yet to see any economic recovery," said George Goehl, executive director of National People's Action in a press release for the report. "They're struggling to find jobs, make ends meet, and provide for their families. [T]he revenue needed for recovery didn't just vanish, it was siphoned off by corporations who refuse to pay their fair share."
Specifically, corporate tax collections fell in 34 of the 46 states with corporate income taxes between 2008 and 2012. Meanwhile, New York offered $11.4 billion in corporate subsidies since 1996.
"Corporations have all-time record profits, while citizens have been struggling and schools aren't doing well as they should. And all we can do is cut services without new revenue," says Klinger. "We need to have a different conversation. Corporations made money when they paid a 32% tax rate. They had job growth and there were raises, and it made the overall economy better."
During the Reagan administration, tax rates were lowered for corporations in order to get their cooperation in closing other tax loopholes. However, those loopholes have crept back into the tax code over time, especially as business interests have been getting increased access to Congress via lobbying. Klinger says now that those loopholes are so prominent again, it's time to even the field by bringing back higher tax rates.
However, not everyone agrees that raising the corporate tax rate to 1970s levels will be beneficial to the economy.
"The world has changed dramatically since the 1970s," says Chris Edwards, director of tax policy studies at the Cato Institute and author of Global Tax Revolution. "Before the 1980s, governments could bottle up capital and could stop corporate investments from flowing over borders."
Edwards says globalization is what has forced governments to reduce corporate tax rates in order to remain competitive with other nations. He also asserts that corporations that have become too skilled at exploiting loopholes and avoiding taxation by shifting operations overseas for an increased tax rate to be effective.
"The more complex the tax code gets, the more that complexity helps corporations find new and fancy ways to evade taxes," says Edwards, who believes lowering tax rates for corporations would foster more honesty and transparency in the system.
Still, others think it will be very difficult for the U.S. to measure up on offering a decent quality of life for its citizens without more corporate contributions to the federal budget to help it pay its bills.
"If we are going to create a future where every American can...have a chance to succeed, every corporation needs to step up and pay a fair share of the critical services we all need," said Katherine McFate, the president and CEO of the Center for Effective Government.