Do corporation tax cuts produce growth? Episode 9,873
The latest report comes from the Center for Effective Government in the United States.
They examined the job creation track record of 60 large, profitable U.S. corporations (from a list of 280 Fortune 500 companies) with the highest and lowest effective tax rates between 2008 and 2010 and found that the highest taxpaying firms created lots of jobs, while the lowest taxpaying (but similarly profitable) firms shed lots of jobs. Visually:
This is certainly consistent with, though it does not of course prove, the idea that companies that seek to reward shareholders by rent-seeking -- of which corporate tax avoidance is one obvious form -- are less likely to create genuine economic value and to create jobs than those whose managers are more interested in building genuine long-term economic value, who don't waste their time trying to figure out sneaky tax shenanigans.
The report contains many snippets such as this:
"In 2004, when a temporary “tax holiday” on offshore profits was put in place, 58 firms brought $218 billion in profits back to the U.S. under the program, for a savings of $64 billion on their taxes. In the following two years, those 58 firms eliminated 600,000 jobs."That notorious tax giveaway was, of course, billed as a job-creation measure.
There's a short analysis of some of the report's other findings, and more, at Naked Capitalism. Which says, among other things:
"One of the arguments made by big companies in favor of making their low payments even lower is that they’d go out and create more jobs. This is clearly spurious. Large companies are already awash with cash, thanks in no small measure to taking advantage of the Fed’s largesse and issuing bonds. They could invest and create jobs with the dough they already have if they were so inclined."Which is kind of another way of saying this:
"Corporate taxes transfer money away from a sector (corporations) that lets it sit idle, into the hands of a sector (government) that puts it straight to work – educating children, building roads and so on. Corporation taxes and appropriate spending are exactly what Britain needs right now."And so on. But the message doesn't seem to be getting through. The tax-cut obsessives remain out in force.
Update 2014: for more information on corporate tax, see here.