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Home›Tax Haven›Ralph Martire | Business opposition to budget bill based on flawed theory | Guest comment

Ralph Martire | Business opposition to budget bill based on flawed theory | Guest comment

By Judy Grier
September 19, 2021
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The $ 3.5 trillion budget proposal forwarded by Congress would go a long way to strengthening America’s safety net.

For example, it would make child care more affordable for low- and middle-income families, while creating a path to universal early childhood programs. It would also support the incomes of working low and middle income workers by continuing the enhanced earned income tax credit benefits initially created under various pandemic relief programs.

The budget proposal would also make health care more affordable, among other things, by reducing the prices of prescription drugs, expanding insurance premium subsidies created under the Affordable Care Act, and launching a new program for provide coverage to approximately 2 million uninsured Americans. Oh, and that would help businesses directly by allocating federal funds to help cover the costs of family leave. But this is not the only way for companies to benefit from this “liberal” proposal.

In fact, most of the benefit programs funded by the proposal help businesses in a variety of ways, from allowing more parents – especially women – to enter the workforce, to subsidizing workers’ incomes. low or moderate income, and thus pressure employers to offer wage increases. It would also give people more money to spend on consumer purchases, which would increase business profits.

This is why business groups have historically supported the social programs that the proposed budget would fund. Yet although they contain many initiatives that businesses support and could benefit from, corporate lobbyists oppose the budget bill.

Why? The answer is simple: To cover some of the $ 3.5 trillion in spending, Congress is considering raising the corporate tax rate to 26.5 or 28% from its current rate of 21%. This tax hike is the reason American businesses oppose a budget that otherwise helps businesses.

Jay Timmons, CEO of the National Association of Manufacturers, lamented that this tax hike would bring America back “to where we were” before the cuts proposed by then President Donald Trump were passed in 2017. This is neither accurate, nor as it turns out, a bad place for business.

This is not correct because the corporate tax rate was 35% before Trump’s tax cuts were passed, still well above the levels proposed to help pay for new federal spending. And in those days before the tax cuts, companies were doing pretty well from a profitability standpoint. How well? According to data from the United States Bureau of Economic Activity, aggregate after-tax corporate profits in 2017 were $ 1.87 trillion.

For context, this profitability figure is 873% higher than in 1981, when President Ronald Reagan first implemented supply-side tax cuts for businesses (and high net worth individuals). ). Recall that according to the supply theory, tax increases always hurt the economy, while tax cuts for wealthy businesses and individuals are still supposed to make it grow at such a rapid rate that huge benefits will trickle down to ordinary people. But things did not turn out as promised by the suppliers.

Indeed, from the time the supply-side tax cuts were first implemented in 1981 until the passage of Trump’s tax cuts in 2017, earnings growth of companies far exceeded the country’s GDP growth, which was around 165 percent, and wage growth for the bottom 90 percent of incomes, or around 40 percent.

Going all the way on the supply side, Neil Bradley of the United States Chamber of Commerce used the flip side of the theory that all tax increases hinder economic growth when he warned that the The proposed tax increase would be “economically devastating for the country”. “

No, it won’t. The truth is, the data has never supported one or the other central tenet of the offer: that tax cuts always boost the economy or that tax hikes always hurt it.

On the contrary, every credible independent study on the supply side to date, whether by the London School of Economics, the International Monetary Fund, or the Congressional Research Service, has found that reducing or increasing rates of Taxation of corporations – or high net worth individuals, for example this issue – is simply not correlated with economic growth.

However, investing in human capital generates increased economic activity that benefits everyone, including businesses.

Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan tax policy think tank, and Arthur Rubloff professor of public policy at Roosevelt University in Chicago. He can be contacted at [email protected]


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