For Immediate Release
Taxes on Corporate Profits Not Tied to Job Creation, New Study Finds
WASHINGTON - Washington D.C. is abuzz with the possibility of corporate tax reform. Years of intense lobbying from corporate executives have convinced many in Congress and the White House that a 35 percent tax on corporate profits represents a competitive threat to American businesses and to the economy. Rep. Dave Camp (R-MI) and Sen. Max Baucus (D-MT), respective chairs of the two powerful congressional tax writing committees, have joined President Obama in calling for closing corporate tax loopholes and using the proceeds to reduce the tax rate on corporate profits. But a study just released by the Center for Effective Government shows that the taxes corporations pay on profits are historically quite low. Moreover, there is no evidence that lowering taxes on corporate profits will lead to more job creation in the U.S.
"The notion that reducing the taxes corporations pay on their profits will create new jobs in the U.S. is just not borne out by the evidence we examined," said Katherine McFate, President and CEO of the Center for Effective Government and one of the co-authors of the report.
The report, The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation, examined the tax rates paid and jobs created by 60 large, profitable corporations. The analysis found that the 30 companies that paid the highest tax rates added nearly 200,000 jobs over a five-year period. Those companies that paid little or no taxes (and in many cases received large refunds) shed about 51,000 jobs during that same period.
"The comparatively high tax rates paid by responsible companies like Smuckers, Nordstrom, Hershey, and Automatic Data Processing doesn't stop them from investing in their businesses and generating new jobs for U.S. workers," said Scott Klinger, Director of Revenue and Spending Policies and co-author of the report.
As the report shows, there is no relationship between tax rates on corporate profits and job growth. Since 1948, job growth has cycled up and down, while the overall rate that corporations actually pay on their profits (the effective tax rate) has generally declined during that time. Further, the report finds that past special "tax holidays" for corporations simply haven't created jobs.
Rather than avoiding taxes and lobbying for even lower rates, the report authors argue that corporations should pay their fair share for the national public structures that allow their businesses to be profitable. "Corporations receive significant benefits from operating here in the U.S.," said Klinger. "A workforce educated at public expense; roads and transit systems that allow employees to get to work and goods to reach customers; and consumer safety standards and inspections that give consumers confidence in products – these are just a few of the advantages American corporations enjoy."
Klinger concluded, "Ensuring that all corporations pay taxes on their profits will provide our government with the revenue needed to invest in modernizing the transportation, information, communications, and energy infrastructure the economy needs to grow. Demanding that the corporate actors that benefit from operating in America help pay for the public systems that enable their success will ensure future generations of Americans can compete in the global economy and thrive."
The report is available online at http://www.foreffectivegov.org/corp-tax-rate-debate on Dec. 3.