Wayne O'Leary

Ending Corporate Taxation

For most of the Obama years, America experienced what can only be described as a “capital strike,” a phenomenon directly opposite to a labor strike, in which workers withhold their labor in pursuit of better wages or conditions of employment. A labor strike is readily comprehended by most people; a capital strike, on the other hand, is something little understood and not to be commented upon in polite company.

The capital strike is simply corporate America’s quiet strategy of withholding its capital to achieve its ends, slow-walking economic investment and hiring unless and until business demands are met in such areas as taxes and regulation; it’s more subtle than the labor strike, but every bit as effective — probably more so. FDR and his New Dealers were convinced that a vindictive capital strike employed by the forces of monopoly against their recovery and reform program caused the recession of 1937-38, interrupting the momentum gained in overcoming the Great Depression.

In our own time, the sluggish post-2008 economic comeback from the Great Recession can be traced to something similar, a stubborn disinclination to invest in plant expansion and create jobs that persisted almost until the last months of the Obama administration. It reached a peak in the run-up to the 2012 election, when The Economist magazine reported a record stockpiling of corporate “dead money” — $2.23 trillion held in abeyance by US public corporations.

The excuses then offered by management for hoarding “mountains of cash” ran the gamut from the Eurozone crisis, problems in the Middle East, and a possible recession in China to poor domestic demand, the fiscal deadlock in Washington, and general political uncertainty. But by Obama’s second term, boardrooms had really honed in on two primary concerns: federal financial regulations on business (especially Dodd-Frank and Sarbanes-Oxley) and the US corporate income-tax rate.

Meanwhile, generated by cost-cutting in production (through labor outsourcing and technology), corporate profits reached record levels without the necessity of increased sales, resulting in the highest returns overall since circa 1950 and the largest share of America’s GDP (15%) in 30 years. Much of the money was held overseas, where US tax collectors couldn’t touch it. Various estimates made between 2013 and 2016 placed total untaxed multinational profits in offshore tax havens at $1.6 to $2.6 trillion, revenues that sat awaiting anticipated repatriation tax breaks.

Corporate America kept to its wait-them-out strategy throughout most of Barack Obama’s final term, resisting pent-up economic demand until 2013 when the unacknowledged hiring freeze was eased and jobs slowly began to come back. Still, it took the entire Obama presidency to bring unemployment down to pre-recession levels (from 10 to 5 percent), and even then, wages remained flat. As for the stock market, artificially propped up by Federal Reserve interest-rate policies and rising profits produced by shrunken corporate labor costs, it didn’t fall nearly as far and revived more quickly, though not to the desired degree.

Then, as they say, a funny thing happened: Donald Trump was elected, along with a GOP Congress, and corporate America, led by Wall Street, saw the potential realization of its dreams. Economic blackmail (money hoarding, stifled investment, and stunted hiring), aimed at what was perceived by the capitalist class as an unsympathetic administration, had apparently worked.

The response was instantaneous. The Dow-Jones Industrial average soared 250 points the day after the election and went on to pass the hallowed 20,000 mark, eventually reaching a record 21,000; other investment indexes followed suit. A headline in USA Today said it all: “GOP sweep may be just the boost Wall Street needs.”

Yet, despite the post-election euphoria, it isn’t all sunshine and roses. While stocks are in uncharted territory, businesses are not borrowing as expected — a key indicator. Having schemed and connived like mini Mitch McConnells to set the table, Wall Streeters are apprehensive that the Republican tax-cutting team of Trump and Ryan may not deliver the anticipated feast for the richest 20% (who own 90% of corporate stocks and would realize almost all of the benefits).

It won’t be for lack of trying. The just-released administration tax plan, primarily designed by hard-right economic advisors Stephen Moore and Lawrence Kudlow, assisted by two discredited voices from the Reaganite past, Steve Forbes and Arthur Laffer, gives the corporate sector everything it’s ever wanted and more.

The key inclusions: (1) a radical reduction in the corporate income-tax rate from 35 to 15 percent — the largest percentagewise since the tax was instituted as a Progressive measure in 1909, surpassing even the Reagan cut of 1986; and (2) a “tax holiday” enabling multinational corporations to bring home or repatriate, at a ridiculously low rate (probably 10%), their foreign profits presently sequestered in tax havens. Described as a one-time option, the holiday reoccurs on a regular basis, the last time being in 2004, when the Bush administration sponsored a $600 billion windfall in dividend payments to lucky corporate stockholders.

In a time of rampant economic inequality, financial instability, and already-low taxes across the board, there can be no rational excuse for the US effectively terminating serious efforts to tax its corporations as per the Republican plan. For starters, doing so would deprive the Federal Treasury of upwards of $2 trillion over the next decade, say both the Tax Foundation and the Tax Policy Center, crippling future government investment.

Then, there’s the whole question of the rationale for this proposed giveaway to Wall Street. It’s premised on the notion that American corporations are grossly overtaxed compared to those of other countries; they’re not.

Between 2006 and 2012, two-thirds of US companies used loopholes and write-offs to pay no federal taxes at all, according to the Government Accountability Office (GAO). Those that did averaged 14% in assessments. And in 2012, The Economist determined the official 35% rate viewed by corporate-tax reformers with mock horror was actually 27.6% after allowing for exemptions and deductions, about on a par with the UK (27.4%) and less than Germany (31.6%).

But in the alternative universe inhabited by Trump’s GOP tax writers, corporate America deserves a rich reward for its manifold contributions — from bringing us the financial crash and Great Recession to bankrolling our political campaigns. For all you do, Wall Street, this tax cut’s for you.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, June 1, 2017

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