We’ve all heard it before - “cutting corporate taxes will create jobs.” The less money a business has to send to the government, the more money it can spend on hiring employees – at least, that’s the argument. But a recent study exposes what companies actually do with those savings.
In 2004, Congress created a temporary tax holiday in the hopes of bringing offshore profits back to the states to help create jobs and boost the economy. However, when 58 firms brought $218 billion in profits back to the U.S., those same firms eliminated 600,000 jobs in the following two years.
These firms distributed between 60 and 92 percent of the repatriated funds to shareholders in the form of share purchases and dividend increases - not jobs.
The Center for Effective Government' s Scott Klinger and Katherine McFate analyzed Bureau of Labor Statistics data from the last 65 years to determine whether a connection exists between cutting corporate tax rates and job growth. They found no such connection.[i] In fact, they found that 22 of the 30 corporations that paid the highest tax rates (30 percent or more) created almost 200,000 jobs between 2008 and 2012, while the 30 profitable corporations that paid little or no taxes collectively shed 51,289 jobs.[ii]
“Today’s sluggish job growth coincides with a period when America’s effective corporate tax rate is near all-time lows.” – Klinger and McFate
Corporate tax rates have declined steadily since the 1950s, and the current rate is almost as low as it’s ever been.[iii] If cutting corporate taxes did create jobs, we would see robust annual job growth coinciding with this decline. Instead, job growth remains generally stagnant.
Politicians need to stop relying on easy political rhetoric, and start finding other policy remedies for job growth and economic development.
[i] Klinger, Scott and McFate, Katherine. (2013). Center for Effective Government. The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Linked to Job Creation. Retrieved from http://www.foreffectivegov.org/files/budget/corp-tax-rate-debate.pdf
[ii] See note i.
[iii] See note i.