Topher Morrison
“[Cutting the corporate tax rate] represents a fundamentally flawed approach. Why? Because corporate tax cuts represent a supply side response to a problem that is fundamentally one of poor aggregate demand.”
Auerback argues that should the corporate tax rate be cut or abolished that it would not necessarily result in cutting unemployment. He reasons:
“…Given that [the] prevailing historically high profit margins and high profit rates already in place have done little to reduce unemployment.”
It may seem succinct and professorial to juxtapose words like "supply side" and "poor aggregate demand", however, reality is a little more complicated. Auerback doesn't address the reason for the disparity between profits and unemployment and therefore prevents his audience from appreciating a crucial facet of the business cycle.
When growth is robust and our economy is at full sail people are fully employed and profits are solid. When the seas start to rise and a storm hits the sails are trimmed to maintain the ship, its heading and hopefully its speed. In the same manner our businesses shed employees, but this doesn't preclude them from maintaining their goals and earning a profit, quite the contrary. According to the New York Times late last year:
When growth is robust and our economy is at full sail people are fully employed and profits are solid. When the seas start to rise and a storm hits the sails are trimmed to maintain the ship, its heading and hopefully its speed. In the same manner our businesses shed employees, but this doesn't preclude them from maintaining their goals and earning a profit, quite the contrary. According to the New York Times late last year:
“…Companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China are expanding rapidly.”
This efficiency evolution is a natural result of the increase in productive technologies and strategies developed during the preceding economic booms. This is the case subsequent to many economic expansions and why we see abundant profit while unemployment rises. Look at previous downturns in the economy over the last 60 years corporate profits have been measured and you will discover this tendency.
Companies discard antiquated business models and modes of production and while the latter obviously involves an unfortunate human element it is a necessary result of the natural respiration and life cycle of an economy. Even when profits are high, in other words, even when the ship may actually improve its speed, the situation remains precarious until the economic turbulence subsides and the captain is able to establish his bearings in order to again set full sail.
Companies discard antiquated business models and modes of production and while the latter obviously involves an unfortunate human element it is a necessary result of the natural respiration and life cycle of an economy. Even when profits are high, in other words, even when the ship may actually improve its speed, the situation remains precarious until the economic turbulence subsides and the captain is able to establish his bearings in order to again set full sail.
I don't care to unduly dehumanize the unemployment situation in this county (Auerback, as many others do, conservatively puts it at 9.1% while it is in many instances appropriately measured at well over 20%), however, the moral, economic, and fiscal dimensions of the corporate income tax, in and of itself, don't involve me covering the necessities of the American public to increase their savings rate or to increase their ability to adapt new skill sets – both of which would greatly mitigate the adverse affects posed by these predictable and periodic episodes all economies face.
When anyone says the word “corporation” is it not reasonable to assume most who hear it think: “multinational”, “special interest”, “robber baron”, “profit hungry”, “greed”, “bankster”, and all the other negative connotations our society has imbued upon the term? In reality, corporations are simply put, a vehicle to deliver goods and services and to reap profits. The profits or the monetized success of the corporation are subsequently handed over to some entity be it government, shareholders, partners, employees, suppliers, or some combination thereof. The blog Spellchek laid it all out in March:
“Let’s remember exactly who pays corporate taxes in America. You do. The consumer. Corporate taxes are simply a portion of the cost structure that goes into pricing a product or service. Corporations do not pay these taxes. They are merely the middleman [sic] who collects the tax from the consumer and pays it to the government.”
Depending on classification corporations can be both large and small and take in profits across the spectrum and most often these companies don’t exceed the boundaries of the state in which they are incorporated. Corporations as such are hardly parallel to GE, Google, Exxon-Mobil, or Microsoft whom regularly skirt American tax law and as Auerback aptly states “do not pay anywhere near the current prevailing marginal rate.” These corporations do not benefit from swanky K Street lobbyists, hordes of savvy accountants, or the elephantine loopholes both help to create and more often than not these corporations reside nowhere near Wall Street.
As far as preventing mega corporations from, as Auerback puts it: “buy[ing] back shares, issu[ing] a special dividend, or initiat[ing] a merger to get their stock price up pronto”, why should we? That’s what corporations do and that is what they are supposed to do! No doubt that megabanks like Wells Fargo, JP Morgan Chase, Bank of America, and Goldman Sachs and the aforementioned mega-multinationals are in aggregate devoid of conscience, but they are systems designed to be that way. They are as much a function in our economy as they are on a math exam. You may get mad at Microsoft Word for auto correcting (as I am right now) or at Donkey Kong for freezing at the final board (should you ever get there), but it is ultimately the system's design. Taxation of this corporate system merely hurts everyone in the economy and opens the floodgates of corruption.
As Megan McCardel of The Atlantic explains the corporate income tax merely reduces wages, as corporations cannot offer larger salaries and benefits let alone more jobs. The tax promotes risky debt financing and wastes corporate dollars better spent on any number of things other than lobbyists and accountants. It is a double tax, first levied on the entity (further depressing wages, jobs, investment, savings, etc.) and then on employees incomes and shareholder's dividends.
Do you get it!? These are the necessary results of the corporate tax. Sure, lifting it won’t necessarily bring back jobs tomorrow, but our corporate income tax, the second highest in the world next to that slug Japan, is preventing us from attracting a legion of foreign direct investment (FDI) and preventing corporations from functioning as massive consumers on the macroeconomic level.
The biggest benefit we all will derive from abolishing the corporate income tax, however, is incorporeal - the abundance of respect we will discover for our form of government when the line of lobbyists preventing us from visiting with our elected representatives disappears.
Do you get it!? These are the necessary results of the corporate tax. Sure, lifting it won’t necessarily bring back jobs tomorrow, but our corporate income tax, the second highest in the world next to that slug Japan, is preventing us from attracting a legion of foreign direct investment (FDI) and preventing corporations from functioning as massive consumers on the macroeconomic level.
The biggest benefit we all will derive from abolishing the corporate income tax, however, is incorporeal - the abundance of respect we will discover for our form of government when the line of lobbyists preventing us from visiting with our elected representatives disappears.
To be fair, however, Auerback does echo some great ideas to boost employment and I don't care to bury that part of his opinion, namely: “cut all marginal tax rates significantly” and “embrace a suspension [of] a full payroll tax holiday for every employer AND employee in the nation.” Albeit, a holiday is just that, a temporary solution, we’re all hopefully looking for long-term results.
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