Where the truth lies in Donald Trump’s tax reform pitch

During a speech on tax reform on Wednesday, President Donald Trump recalled memories of President Ronald Reagan’s rewrite of the tax code in the 1980s.
“In 1986, Ronald Reagan led the world by cutting our corporate tax rate to 34%,” Trump said in his Springfield, Missouri, speech. “Over the past 30 years, the average business tax rate among developed nations fell from 45% to less than 24%. … They are taking us, frankly, to the cleaners. So we must — we have no choice — we must lower our taxes.”
This is core to Trump’s pitch that the tax rate on corporations be lowered from 35% to 15%. But while 35% is indeed among the highest in the developed world, it is actually nowhere near what most companies pay.
In 2016, the nonpartisan Government Accountability Office found at least two-thirdsof corporations did not pay any federal income tax between 2006 and 2012. One-fifth of America’s largest corporations who reported a profit in 2012 paid no income tax that same year.
A study released earlier this year found the effective tax rate for Fortune 500 companies that were consistently profitable is 21.2%. Eighteen of the more than 250 companies analyzed paid no corporate tax over an eight-year period; 48 paid less than 10%.
In fact, as Trump argues American companies leave the U.S. because of high tax rates, the percentage of federal revenue coming from corporations has fallen by two-thirds since 1950.
The U.S. still has one of the world’s higher corporate tax rates, but not to the extreme degree Trump has consistently alleged. American companies actually pay slightly less in overall taxes than companies in comparable countries.
Google paid less than 17% in 2015 and large drug manufacturers paid even less. General Motors paid a negative 34.3% tax rate.
How do companies pull this off? Deductions and tax breaks.
According to a Center on Budget and Policy Priorities study, while the corporate income tax in 2016 raised $300 billion in revenues, “targeted subsidies delivered to companies through the corporate tax code cost about $270 billion.”
It’s also worth noting that a corporate tax rate of 15% is seen as a nonstarter in Congress. Republicans would be hard-pressed to fund a deficit-neutral tax plan with that low a tax rate and Democrats would never support it.
The upshot of this is asking whether the estimated cost of Trump’s tax plan — $2 trillion over a decade — is worth it. There’s little evidence to suggest it would bring companies, particularly blue collar employers Trump hopes for, flooding back into the U.S.

 

 

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