On Wednesday, following a short (and dry) visit to a Texas ravaged by Hurricane Harvey, US President Donald Trump traveled to Missouri where before a group of workers revealed the latest on his ambitious plan for tax reform.
During what turned out to be a speech scarce on details, Trump vowed to drop the country’s corporate tax to 15 percent and make America competitive again.
“When it comes to the business tax, we are dead last: can you believe that?” Trump said.
The US President added, “We have totally surrendered our competitive edge to other countries. We’re not surrendering any more. Ideally, and I say this for our secretary of the treasury, we would like to bring our business tax rate down to 15%, which would make our tax rate lower than most countries but still by no means the lowest, unfortunately, in the world. But it would make us highly competitive.”
Referring to the US’s major economic competitors, Trump said, “They are taking us, frankly, to the cleaners. So we must, we have no choice, we must lower our taxes.”
Furthermore, the US president harked back to the Reagan days when, according to him, all was great: “In 1986, Ronald Reagan led the world by cutting our corporate tax rate to 34%. That was below the average rate for developed countries at the time. Everybody thought that was a monumental thing that happened. But then, under this pro-America system, our economy boomed. It just went beautifully, right through the roof. The middle class thrived and median family increased.”
Trump concluded, “This is our once-in-a-lifetime opportunity…I am fully committed to working with Congress to get this job done and I don’t want to be disappointed by Congress.”
Opposition Bashes Trump’s Corporate Tax Plan Bashed
His opposition and the media, however, were not particularly thrilled by the speech and his tax plans for the country.
Democrat Nancy Pelosi said,“Instead of offering the American people a plan for real, job-creating tax reform, President Trump is pushing a billionaires-first, trickle-down tax scheme that hands out massive tax cuts to the wealthiest, at the expense of American families.”
“If Republicans have their way, they will blow a huge hole in the deficit, gut Medicare, Medicaid, social security and the Affordable Care Act – all just to fund deficit-busting tax breaks for the high-end,” she added.
US Media Questions Corporate Tax Cut’s Viability
Furthermore, the media questioned Donald Trump’s tax objectives.
Firstly, journalists like Russell Berman for The Atlantic criticized Trump for his empty words.
Berman wrote, “What Trump’s speech revealed was that despite months of behind-the-scenes negotiations, Republicans aren’t much closer to enacting the most significant overhaul of the tax code in 30 years than they were back in April.”
Ultimately, Berman believes tax reform will not succeed as long as the Republican Party doesn’t get its act together.
Berman concluded, “Trump is not a detail-oriented president. That much is clear. But while he may be able to stick to broad strokes in rally-the-public speeches and leave the rest to Congress, his party will eventually have to make the tough decisions about who’s going to pay more, who gets to pay less, and by how much. Until that happens, tax reform isn’t going anywhere.”
Others called President Trump out for supporting a plan he referred to in the past as being catastrophic.
Bess Levin for Vanity Fair highlighted the fact that back in 1991 Trump trashed Ronald Reagan’s 1986 tax reform for obliterating the US real estate industry.
During Wednesday speech, Trump praised Reagan’s tax reform and vowed to follow in his footsteps.
Levin, quoting The Hill, wrote, “the real-estate developer appeared before Congress and said, “This tax act was just an absolute catastrophe for the country, for the real-estate industry.” Still steaming about it in 1999, Trump wrote an op-ed for The Wall Street Journal, calling it “one of the worst ideas in recent history.”
Furthermore, Chris Macke for Fortune criticized Trump and the Republican Party for espousing a tax reform that is based on hope instead of concrete results.
Macke wrote, “With a nearly $20 trillion dollar national debt, we no longer have the luxury of implementing universal and unconditional corporate tax cuts in the hope that companies use the tax savings to create jobs.”
Instead, Macke suggested pursuing a “jobs-based corporate tax policy” where “each company’s corporate tax rate is based on each company’s rate of job creation.
“We need a more strategic, results-driven tax policy in which tax cuts are tied to increased American employment, not the hope of job creation,” he added.
Lastly, John Harwood writing for CNBC finds two major inconsistencies in the President’s tax plan for the US.
First, he wrote, “Trump lately has been touting the robust health of American business. "Corporations have NEVER made as much money as they are making now," the president tweeted on August 1.”
Second, Harwood noted, “most Americans want corporations taxed more, not less. In that April Gallup survey, 67 percent of Americans said corporations pay "too little" in taxes, while just 9 percent said “too much.”
Both of these—his messages on Twitter and the population’s overall sentiment—counter his purported plan to drop the corporate tax rate.
Studies Say Corporate Tax Cuts Unlikely to Create Jobs
Several academic studies and recent experience suggest that jobs are unlikely to be created if Donald Trump’s moves ahead with his corporate tax cut.
A recent report by the US’s Committee for a Responsible Federal Budget found no immediate correlation between corporate tax rates and the number of job created as a result.
As reported in The Guardian, the study “looked at 92 publicly-traded corporations that reported consistent profitability between 2008 and 2015, and found that they already benefitted from low effective tax rates, paying less than 20% of that net income to the federal government in tax.”
This report posits that, “while the total rate of job creation among the US private sector as a whole was 6%, these 92 companies saw a 1% decline in employment. They are creating jobs at a slower rate than the economy, in spite of having precisely this “Goldilocks” tax rate.”
Similar conclusions were reached by a study by the Institute of Policy Studies (IPS), which suggests, “companies that reap more tax savings aren't more likely to expand their workforce.”
IPS’s Global Economy Project Director Sarah Anderson prefers if Trump pushed to end the many loopholes available to companies.
Anderson told The Washington Post, “How can they claim that they’re going to turn tax savings into job creation when they've already been getting hugely reduced tax bills and they’ve been cutting jobs?”
Furthermore, back in 2004 when George W. Bush awarded a tax holiday to US companies operating abroad, job creation did not receive the desired boost.
A 2011 investigation into 15 repatriating companies by the Senate Subcommittee on Investigations concluded that, “instead of spurring jobs and economic stimulus, the tax break was instead associated with increased corporate stock buybacks and executive pay.”
Furthermore, it found that the lower “tax rate created a competitive disadvantage for domestic businesses that chose not to engage in offshore operations or investments, and provided a windfall for multinationals in a few industries without benefitting the U.S. economy as a whole.”
How will this all end? Will Donald Trump succeed in reforming the US’s tax system or will it fall through like it did for him and Obamacare?