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The Journal Gazette

  • Associated Press President Donald Trump talks with reporters in Fort Myers, Fla., on Thursday. Trump has talked about slashing the corporate tax rate to as low as 15 percent.

Saturday, September 16, 2017 1:00 am

Economists: Corporate tax cut won't trickle down

JOSH BOAK | Associated Press

WASHINGTON – For President Donald Trump, what's good for General Motors is great for American workers. Same for Boeing, AT&T and small businesses.

Trump insists slashing the corporate tax rate from 35 percent to as low as 15 percent would free up valuable cash. Companies would use the money to boost investment, increase employees' pay, accelerate hiring and speed economic growth. What's more, corporations that now keep trillions overseas to avoid U.S. taxes would bring the money home. American companies could better compete with rivals based in countries with lower tax rates.

“We're going to have magnificent growth,” Trump declared aboard Air Force One on Thursday. “We're going to go like a rocket ship.”

Would we? Many economists, tax experts and even some business owners say it's unlikely. Rather than hire, companies might use much of their tax savings to buy back their stock or increase their dividends to investors. Many companies, they note, have already been able to borrow at historically low rates to expand their businesses yet have chosen not to.

“The mainstream economic evidence is that the bulk of corporate tax cuts go exactly to whom you would expect – which is wealthy investors and executives,” said Chye-Ching Huang, deputy director of federal tax policy at the left-leaning Center on Budget and Policy Priorities.

Many economists foresee some benefits from overhauling and simplifying the corporate tax code, just not the extreme growth Trump is promising.

One reason corporate tax cuts might provide little overall benefit is the relative health of today's economy. Unemployment is already unusually low at 4.4 percent. The economy is in the ninth year of a slow but steady expansion, rather than in a downturn in which tax cuts might deliver a major boost.

In a 2014 paper, two economists – Alexander Ljungqvist of New York University and Michael Smolyansky of the Federal Reserve – concluded that state corporate tax cuts did little to strengthen economic activity unless the cuts were made during a recession. (The flip side is that they found corporate tax increases to be “uniformly harmful.”)