Any politician who has ever proposed a tax cut has exaggerated just how much good it would do, especially for those who are not the direct beneficiaries of the proposal.
But the Trump administration’s claim that the president’s proposed tax slash for corporations will produce an extra $4,000 a year for an average U.S. household is about as bogus as it comes.
Outside economists who have looked at the calculations say for the White House’s numbers to be true, it would take more than a trickle of benefits to filter down to workers from seeing lower tax rates for their employers; it would take a tsunami.
According to critics of the plan, the income growth projected by Kevin Hassett, Trump’s top economic adviser, assumes that U.S. corporations pass on more than 100 percent of their taxes to consumers in higher prices and workers in lower wages — a mathematical impossibility.
But you don’t have to be an economist to know that the administration’s calculations are a fiction. There’s no way that cutting corporate taxes is going to produce a 5 percent increase in average household income. What it will produce is higher deficits, which eventually will fall on the backs of middle and working classes either in reduced government benefits, higher interest costs or a tax shift from corporate filers to individual ones.
It’s true that the U.S. corporate tax rate — at least on paper — looks out of line: almost 39 percent when state and local taxes are combined with the top federal tax rate, making it the highest in the world among developed nations. No corporation with an accountant on the payroll, however, forks over that much. Once deductions and credits are taken, the average tax rate drops by 20 points, to just under 19 percent, according to the nonpartisan Congressional Budget Office. That’s still high in the ranking of developed nations — fourth from the top — but much more in line with the tax burden that most other countries expect corporations to shoulder.
Maybe the corporate tax rate does need to be reduced to discourage U.S. companies from seeking tax shelters overseas for their profits — and instead invest that money domestically.
But slashing the top rate from 35 percent to 20 percent, as Trump proposes, is way too drastic unless the administration also plans to eliminate most of the loopholes that exist presently in the corporate tax code. That’s about as likely to happen, though, as the $4,000-per-family income boost.
