There is more evidence today that in the real world, lower corporate taxes don’t lead to higher job creation.
In fact, most of the “job creators” in today’s economy are paying some of the highest corporate taxes, while the companies that are paying little or nothing in corporate taxes are the ones that are slashing their payrolls.
That’s the core finding of a report released today by the Center for Effective Government, “The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation.”
The numbers are clear. In an examination of 60 large, profitable U.S. corporations, 22 out of 30 companies that paid corporate tax rates of 30 percent or more created almost 200,000 jobs between 2008 and 2012. Thirty corporations that paid little or nothing in taxes during that period showed a net loss of more than 51,000 jobs.
The companies that added jobs were, as might be expected, in such fields as retail (Lowe’s, Whole Foods), health care (United Health Care, Humana), education (Apollo Group) and technology (ADP). The companies that lost jobs included the phone company Verizon (with the largest number of lost jobs, 55,738), several energy utilities, and banking giant Wells Fargo.
The utility companies on the list deserve special attention, because part of the 2009 American Recovery Act stimulus program included special tax deductions that were intended to encourage job creation. Seven out of the 11 public utilities included in this report used that tax deduction, but among them still cut almost 3,000 jobs.
“The willingness of individual corporations to invest their profits in expanding their businesses and employing more workers appears to be related to standard economic concerns like customer demand, developments in the industry, and perceptions of the overall health of the economy rather than tax rates paid on annual profits,” the report concludes.
That’s not only evident in the past few years but in the past 65 years, the report says, including periods when effective corporate tax rates were almost four times what they are today. As corporate tax rates trend downward, job growth has vacillated up and down.
The report notes that the average actual corporate tax rate is 12.6 percent, way below the “statutory” rate of 35 percent that conservatives usually quote to make the case that corporate taxes are too high. In reality, almost no major corporation pays taxes at the 35 percent rate. And a lot of companies – Verizon and Wells Fargo among them – have paid over the past three years what amounts to a negative corporate tax rate; they’ve actually received money from the taxpayers.
Overall, corporate taxes as a share of the overall economy are at post-World War II lows, even as corporate profits as a share of the economy are at a record high. The problem isn’t that corporations don’t have money to invest in growing their businesses and creating jobs – collectively, they are sitting on more than $1 trillion in cash. It’s that they choose not to do so. Corporations often prefer to use their excess cash to buy back their own shares; that keeps the company’s stock price propped up but offers no stimulus to the Main Street economy. Or corporations will buy up competitors or companies that offer often-elusive “synergies”; the merger activity is usually a job-killer, not a job-creator.
There are good reasons to reform the corporate tax structure, not the least of which is to eliminate the gamesmanship that some corporations can use to avoid taxes and thus gain an unfair advantage over corporations that can’t or won’t play those same games. But let’s not pretend that giving the corporate sector big tax breaks will unleash a wave of job-creation. When there’s more money to be made by adding an employee than there is by playing tax accounting tricks or rolling dice in the stock market casino, they will add an employee – and not one minute sooner.