The Trump Tax Law’s Corporate Rate Cut Isn’t Really ‘Permanent’
By William Rice
There’s no such thing as a permanent law or portion of a law. Legal provisions–including tax rates and rules–only last as long as legislatures feel no need to change them. Though perhaps obvious, this is an important point to keep in mind as Congress debates its huge tax-and-spending bill this month.
The biggest chunk of that bill is a permanent extension of the expiring parts of the 2017 Trump-GOP tax law, which has already added $2 trillion to our national debt and given most of the goodies to the upper class. To obscure its full cost back then, the Republican Congress gave parts of the law an expiration date; time’s up at the end of this year. Now the current Republican Congress wants to instead renew those provisions and make them “permanent.”
That “permanent” status is already enjoyed by the centerpiece of the 2017 law: a two-fifths cut in the corporate tax rate. But the law’s generous corporate rate cut is only “permanent” in the sense that it doesn’t have a predetermined expiration date. It can still be revoked or altered at any time.
And now would be a good time. The bill currently moving through Congress contemplates funding its $5.5 trillion in tax cuts–again mostly for the rich–chiefly with borrowed money. To the extent the bill’s GOP authors plan to pay for the tax cuts, it’s through reductions in vital public services like healthcare and nutritional assistance and by revoking credits that lower household energy costs.
Republicans are intent on enacting a bill that gives most of the benefits to the richest households and most profitable corporations (in the latter case, through looser tax-deduction rules). That’s a bad idea in itself–but it’s made even worse by their unwillingness to demand the rich pay for at least some of their tax-cut bonanza with a higher tax rate on corporations.
After all, the large tax cut those big firms got in 2017 didn’t help anyone except top executives –who got fat raises–and wealthy investors (a lot of them foreign), who were showered with stock buybacks and dividend increases. All the rank-and-file-worker wage hikes and business investment we were promised never materialized. We could have anticipated this breakdown of benefits, since corporations are owned almost exclusively by the rich. So the cost of eliminating the corporate rate-cut–or at least shrinking it–would be borne by those wealthy people, who are more than capable of bearing it.
And we’re talking about a lot of potential revenue. Even boosting the corporate tax rate just half way back to where it was before the 2017 law, to 28%, would raise an estimated $1.3 trillion over 10 years. Restoring it to 35% would bring in much more.
Remember: American corporations were not exactly languishing before they got their tax cut. Except during recessions, they’ve been setting profit records nearly every year for decades. Similarly, the general trend of stock prices–allowing for the occasional setback–has been up, up, up for a long time
The only thing that’s been going down recently is the share of total federal revenue coming from corporate taxation. In the middle of the last century, corporations often provided roughly a third of the money needed to run the U.S. government. Nowadays, corporate taxes rarely offer more than 10%.
Part of the reason is that most corporations pay less than the statutory corporate tax rate. Over the first five years of the Trump tax law, 342 firms that recorded profits each of those years paid an average cumulative effective tax rate of just 14.1%. Fifty-five of those companies–including such household names as Bank of America, General Motors, and Netflix–paid an average tax rate of just 1.8% over that five-year span, despite almost $670 billion of combined profits. In the last year of that period, 2022, the average American family paid a tax rate of 14.5%. Along with closing loopholes, one of the best ways of raising the effective tax rate paid by corporations is to raise the statutory rate.
Corporations rely on public goods and services for their success: transportation networks to carry products and customers; public schools and colleges to educate the workforce; our legal system to enforce contracts and ensure fair competition. Corporations need to better support those public resources with their tax dollars.
So if during the budget debate, you hear a distinction made between the “permanent” and “temporary” parts of the 2017 tax law, don’t believe it. Any law, any tax, can be changed whenever necessary, and right now it’s necessary to raise the corporate tax rate.