Is A Corporate Tax Cut Really What The Economy Needs Right Now? Supporters of the tax cut say it will lead to more hiring and faster growth. But the evidence isn't so clear-cut.
NPR logo

Is A Corporate Tax Cut Really What The Economy Needs Right Now?

  • Download
  • <iframe src="https://www.npr.org/player/embed/563420070/563692158" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Is A Corporate Tax Cut Really What The Economy Needs Right Now?

Is A Corporate Tax Cut Really What The Economy Needs Right Now?

  • Download
  • <iframe src="https://www.npr.org/player/embed/563420070/563692158" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

STEVE INSKEEP, HOST:

Let's ask if a Republican tax cut really does what's advertised. The centerpiece of the GOP plan is a tax cut for corporations, a rate that's now 35 percent and would fall to 20. Various tax deductions would go away to help finance the drop. Supporters insist the corporate tax cut would bring economic growth and jobs. So will it? Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: President Trump and other Republicans justify the corporate tax cut this way - they say, if you cut taxes, businesses will have more money to spend. Companies such as Apple will bring back some of the billions of dollars they've stashed overseas, and then they'll hire more. They'll invest in factories and equipment. Here was Counselor to the President Kellyanne Conway speaking on Fox News last week.

(SOUNDBITE OF ARCHIVED RECORDING)

KELLYANNE CONWAY: When our businesses pay less in taxes, they reinvest that money into their companies. They create new jobs. They save and secure the jobs that exist. They start paying more in benefits and different benefits, and they invest in inventory.

ZARROLI: And Republicans say when companies invest more in their factories and infrastructure, they become more productive, and when companies become more productive, they pay higher wages, even to low-skilled employees. A recent report from the White House Council of Economic Advisers predicted that cutting corporate taxes would raise annual household incomes $4,000 on average and probably even more than that. Economist Kimberly Clausing of Reed College says, on the surface, the logic sounds airtight.

KIMBERLY CLAUSING: The principle makes a lot of sense, the thought that you increase investment and that investment increases the productivity of your workers and then your workers get paid more in consequence.

ZARROLI: But Clausing says the reality is a lot more complicated. She believes the relationship between tax cuts and growth is difficult to prove.

CLAUSING: There's no evidence that corporate tax cuts unleash a big wave of economic growth or wage increases.

ZARROLI: Clausing says an economy the size of the United States has too many moving parts. So when the economy accelerates, it could be because of tax cuts or it may be something else entirely. Clausing and other economists are skeptical about the promises Republicans are making for another reason. Josh Bivens of the Economic Policy Institute says tax cuts make a certain sense in a recession when business profits are falling and companies have trouble borrowing money.

JOSH BIVENS: But that doesn't describe the U.S. economy today. We have very low interest rates and very high post-tax corporate profits.

ZARROLI: In other words, he says most corporations have access to pretty much all the money they need right now, but they're not investing all that much, and they're not paying their workers much more.

BIVENS: So we have exactly what the corporate tax cut is trying to engineer - really high post-tax profit rates. And yet, it has not resulted in more investment. And so the idea that we just want to do more of the same thing that has not spurred investment strikes me as not correct.

ZARROLI: Bivens says all this points to a much larger and more formidable problem for the economy. After the longest post-war expansion on record, companies don't see a lot of opportunities out there to sell more. And in a world of tough global competition, they're not really raising wages all that much. So he says giving them even more money by cutting their taxes isn't going to address the real problems the economy faces. Jim Zarroli, NPR News, New York.

(SOUNDBITE OF DO MAKE SAY THINK'S "AS FAR AS THE EYE CAN SEE")

Copyright © 2017 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.