Tax Cut Debate
WASHINGTON — For President Donald Trump, what’s good for General Motors is great for American workers. Same for Boeing. And AT&T. Not to mention small businesses.
Trump insists that slashing the corporate tax rate from 35 percent to as low as 15 percent would free up valuable cash. Companies would use the money to boost investment, increase employees’ pay, accelerate hiring and speed economic growth. What’s more, corporations that now keep trillions overseas to avoid U.S. taxes would bring the money home. American companies could better compete with rivals based in countries with lower tax rates.
“We’re going to have magnificent growth,” Trump declared aboard Air Force One on Thursday. “We’re going to go like a rocket ship.”
Would we? Many economists, tax experts and even some business owners say it’s unlikely. Rather than hire, companies might use their tax savings to buy back stock or increase dividends to investors. Many companies, they note, have already been able to borrow at historically low rates to expand their businesses, yet have chosen not to.
Nor have previous efforts to reduce corporate taxes generally delivered as advertised. Kansas, for example, exempted hundreds of thousands of businesses from corporate taxes and cut individual rates in 2012, only to face a revenue squeeze as the intended economic growth never materialized.
There is also concern that a corporate tax cut would swell the federal budget deficit. When the nonpartisan Tax Policy Center published an analysis this week, it found that even if virtually all tax breaks were eliminated, the corporate rate could drop only to 26 percent without increasing the deficit.
Still, many companies stress that lower business taxes would lead to more hiring. John Stephens, AT&T’s chief financial officer, said his company faces a typical tax rate of 34 percent in any given year.
Stephens estimates that lower rates would lead the company to immediately invest more money in its phone network, which he said would lead to more hiring by companies that work with AT&T.
“When we buy more equipment, our vendors hire more,” Stephens said. “When we build more extensive networks, we have people — hard-hat jobs — building those networks.”
But like many corporations, AT&T also benefited substantially from tax breaks between 2008 and 2015, saving as much as than $38 billion, according to an analysis by the left-leaning Institute on Taxation and Economic Policy. The administration has yet to spell out all the possible tax breaks that would be eliminated to pay for lower rates.
Gary Cohn, Trump’s top economic adviser, has argued that the planned tax cuts would help small businesses. By cutting taxes on profits that typically double as the owners’ personal income, those companies would then be able to hire more freely.
AP writer Catherine Lucey in Washington contributed to this report.
