Tax myths and tall tales
What supply-side economists don’t want you to know about taxes
Published: April 14, 2011
The top 300,000 Americans now have almost as much income as the bottom 150 million, the data show.
6. When it comes to corporations, the story is much the same – less taxes
Corporate profits in 2008, the latest year for which data is available, were $1,830 billion, up almost 12 percent from $1,638.7 in 2000. Yet, even though corporate tax rates have not been cut, corporate income-tax revenues fell to $230 billion from $249 billion – an 8 percent decline, thanks to a number of loopholes. The official 2010 profit numbers are not added up and released by the government, but the amount paid in corporate taxes is: In 2010 they fell further, to $191 billion – a decline of more than 23 percent compared with 2000.
7. Some corporate tax breaks destroy jobs
Despite all the noise that America has the world’s second-highest corporate tax rate, the actual taxes paid by corporations are falling because of the growing number of loopholes and companies shifting profits to tax havens like the Cayman Islands.
And right now America’s corporations are sitting on close to $2 trillion in cash that is not being used to build factories, create jobs or anything else, but act as an insurance policy for managers unwilling to take the risk of actually building the businesses they are paid so well to run. That cash hoard, by the way, works out to nearly $13,000 per taxpaying household.
A corporate tax rate that is too low actually destroys jobs. That’s because a higher tax rate encourages businesses (who don’t want to pay taxes) to keep the profits in the business and reinvest, rather than pull them out as profits and have to pay high taxes.
The 2004 American Jobs Creation Act, which passed with bipartisan support, allowed more than 800 companies to bring profits that were untaxed but overseas back to the United States. Instead of paying the usual 35 percent tax, the companies paid just 5.25 percent.
The companies said bringing the money home – “repatriating” it, they called it – would mean lots of jobs. Sen. John Ensign, a Nevada Republican, put the figure at 660,000 new jobs.
Pfizer, the drug company, was the biggest beneficiary. It brought home $37 billion, saving $11 billion in taxes. Almost immediately it started firing people. Since the law took effect, it has let 40,000 workers go. In all, it appears that at least 100,000 jobs were destroyed.
Now Congressional Republicans and some Democrats are gearing up again to pass another tax holiday, promoting a new Jobs Creation Act. It would affect 10 times as much money as the 2004 law.
8. Republicans like taxes, too
President Reagan signed into law 11 tax increases, targeted at people down the income ladder. His administration and the Washington press corps called the increases “revenue enhancers.” Among other things, Reagan hiked Social Security taxes so high that by the end of 2008, the government collected more than $2 trillion in surplus tax.
> Email David Cay Johnston