A progressive view: We can’t afford tax cuts for millionaires and corporations
By FRANK CLEMENTE
President Trump and Republicans in Congress are pushing plans that give huge tax breaks to millionaires and wealthy corporations, paid for by cutting Medicare, Medicaid, education and other critical services. To protect these priorities and to invest in our communities, we need tax reform that makes the wealthy and big corporations pay their fair share of taxes.
But make no mistake: what the Republicans are proposing is not real tax reform.
Trump’s plan gives half the total tax cut to the wealthiest 1 percent. Under the House plan, the top 1 percent gets virtually all the tax cuts (99.6 percent) once fully phased in.
The total cost of the tax cuts proposed by Trump will range from $3.5 trillion to $5 trillion. In the meantime, Trump is proposing $4 trillion to $5 trillion in budget cuts to vital services like health care, education, infrastructure, housing and food assistance.
A preliminary analysis of Trump’s tax proposal by the independent Institute on Taxation and Economic Policy shows that in Illinois, nearly 56.1 percent of the tax cuts would benefit Illinois’ wealthiest 1 percent, whose average income is $2.7 million.
The Republicans claim that these tax cuts for millionaires and corporations will “trickle down” and create jobs, but that myth has been debunked repeatedly.
Backers of corporate tax cuts claim they would lead to greater investment and economic growth. But corporations aren’t short of money now: they’re making record profits, they’re sitting on record amounts of cash, and they can borrow cheaply. Recent history shows corporations are likely to use tax cuts to increase dividends and share buybacks, not invest or hire.
And in fact, the budget cuts to health care, education and infrastructure will cost jobs. These cuts wouldn’t be necessary if not to pay for the tax cuts.
Corporate executives and shareholders are rewarded richly, yet many Illinoisan families are left footing the bill for the very services that allow American businesses to thrive: the roads and bridges and ports necessary for transport of goods; the police, emergency personnel, and military that ensure the safety of commerce; the education and health care that are necessary to maintain a workforce.
Corporations and their lobbyists complain about the 35 percent corporate tax rate. But the effective corporate tax rate – what corporations actually pay after taking advantage of loopholes – is as low as 14 percent, according to a recent study by the nonpartisan Government Accountability Office.
That’s a lower tax rate than many middle-class families and small businesses pay, and it’s not nearly enough. It’s not just a matter of fairness. Real people, including Illinoisan families, suffer real harm from corporate tax dodging: commuters driving potholed highways, students priced out of college, seniors denied nursing-home care.
Republicans also claim that a new tax-rate for “pass-through” business entities like LLCs, S-corporations, partnerships, and sole proprietorships will primarily benefit small businesses. But that’s a hoax. It is true that such businesses make up 95 percent of all businesses, yet the plan Trump is proposing will only benefit 7 percent of business owners, and the top 1 percent would receive 77 percent of the tax break.
Trump’s proposal to lower the tax rate on these businesses from 40 percent to 15 percent is known as the “Trump Loophole” because the president will benefit enormously from it, as most of his income comes from pass-through businesses. If the Trump Loophole becomes law, the president will pay the same 15 percent tax rate that a small-business owner making $60,000 a year on Main Street would pay.
Meanwhile, this pass-through cut that would actually benefit hedge fund managers and real estate developers like Trump would cost up to $2 trillion in lost revenue over the next 10 years. Note that Trump’s budget calls for a $1.9 trillion cut to Medicaid and other health services.
If Republicans were serious about tax reform rather than just tax cuts for millionaires and corporations, they’d close loopholes while lowering rates in order to maintain revenue and not threaten priorities like Medicaid, Medicare, Social Security, and public education.
One especially egregious loophole allows American corporations, including Illinois corporations, to avoid U.S. taxes by stashing profits offshore. Corporations now hold a staggering $2.6 trillion in earnings overseas, on which they owe over $750 billion in U.S. taxes. A loophole called “deferral” allows multinational corporations to decide when and if to pay their U.S. taxes on all that offshore money.
A mere handful of American firms are responsible for most of those offshore profits. Fifty companies hold three-quarters of it, 10 companies own 40 percent, and one-fourth of the total belongs to just four corporations: Apple, Microsoft, General Electric and Pfizer.
Rather than ending deferral and collecting the taxes we’re due, President Trump and Congressional Republicans want to reward an elite group of corporate tax dodgers – including price-gouging pharmaceutical companies – with a huge tax cut of over half a trillion dollars.
If we instead demanded corporations pay their full offshore tax bill, we could make a variety of productive public investments: double highway and transit repairs over seven years; provide tuition-free community college to nine million students; pay for a decade’s worth of preschool for all 4-year-olds; expand the Earned Income Tax Credit; and boost funding for the National Cancer Institute by half.
Cutting corporate taxes even lower than they are today would further enrich corporate executives and shareholders while hurting working families and small businesses by forcing cuts to important public services. We should instead close corporate tax loopholes and use the resulting increased tax revenue to invest in Illinois’s communities, families and future.
Frank Clemente is the executive director of Americans for Tax Fairness. He wrote this piece at the request of the Illinois Business Journal.