Data released by the US Treasury Department on Friday confirms that President Trump’s tax law eliminated corporate income tax, despite claims by his supporters that the law’s corporate tax cuts would be in effect. somehow profitable. This should be of concern to anyone who wants government to work.
The new data confirms that tax revenues are falling at a rate never seen in times of economic growth. For the first five months of fiscal 2019 (which started in October 2018), net corporate tax revenue is down 20% compared to fiscal 2018.
This is particularly alarming as fiscal 2018 saw the second largest corporate tax cut in recorded history. Corporate income tax collection fell 31%, from $ 297 billion in fiscal 2017 to $ 204 billion in fiscal 2018, when the new law came into effect. force for the first time.
The only other year in which corporate income tax has fallen more rapidly was in 2009 at the height of the Great Recession. Corporate tax revenues then collapsed because corporate profits themselves collapsed during the recession, while today corporate tax revenues collapse entirely at because of a choice made by the president and his supporters in Congress.
The current collapse should come as no surprise to anyone who has followed the passage of the so-called Tax Cuts and Jobs Act, which cut the corporate tax rate from 35 to 21 percent, created a giant new tax break for capital investments and failed to close special breaks and loopholes that allow some companies to pay nothing at all.
All objective forecasts have shown that the new law is a major revenue loser both in the short term and over time. But some of the new tax law’s strongest supporters have insisted, without evidence, that the business cuts will pay off in the form of economic growth. Their argument is that lower corporate taxes lead to huge increases in investment and corporate profits and income, and taxes paid on additional profits and income will offset the income losses resulting from tax cuts.
The new data confirms that this couldn’t be further from the truth. The economy has, in fact, experienced healthy growth since the passage of the tax law, in part because of the artificial stimulation of tax cuts during a period of sustained economic growth. But it was never likely that companies, which were already enjoying huge profits and had big piles of money, would change their investing behavior in the wake of the tax cut. When examining the decline in corporate tax revenues, it is important to note that it coincides with the growth in corporate profits. The most recent forecast from the Congressional Budget Office points to 8% growth in corporate profits in 2018.
The new Treasury data are certainly not the only worrying signs. The revelation that Amazon, one of America’s largest and most profitable companies, paid no federal income taxes on a record $ 11 billion US income last year was a strong signal that something is wrong. And other large profitable companies have made the same zero income tax disclosure. In an economy increasingly dominated by a handful of mega-companies, the tax behavior of these companies matters.
Disclosures from Amazon and other companies point us to the cure for our apparent corporate tax failure: Congress must find the political will to examine and reform the many legal tax loopholes that the biggest corporations have. use to avoid paying income taxes. This could help create a long-needed level playing field between large companies that set their own rules and small family businesses that do not have access to special tax breaks, and could also help restore public confidence in our tax system and among our elected officials.