By Catherine Rampell
Republicans have one idea and one idea only: That we should cut taxes for the rich. The only thing that changes is the sales pitch.
And the latest pitch, offered by President Trump last Wednesday, is a bit of a doozy.
Back around 2012, when Mitt Romney was running for president, the pitch was that we wanted to encourage “job creators” (i.e., rich people) to work harder. Their taxes were so high that it simply wasn’t worth it for them to put in that marginal hour at the office, or to build that additional business.
The payoff would be too low, particularly relative to how much money they’d already accumulated. Why bother putting in the extra effort, even if that extra effort might create a job or higher wages for someone else?
Romney was a suitable spokesperson for this argument. He was, after all, a successful businessman who had built and grown lots of companies. He could make a credible case that if people like him were given the choice between working an extra hour and spending that hour golfing, the economy might benefit if he chose the office.
Today, of course, Trump can’t make the same argument with a straight face.
He and his plutocratic entourage have illustrated how many rich people add somewhere between zero and negative value to the world around them when they spend additional time “working.”
The more hours Betsy DeVos, Jared Kushner and Donald Trump Jr. devote to golfing and vacationing, the better. They’d do less damage that way.
A slightly different trickle-down pitch (one Romney, House Speaker Paul Ryan, and other prominent Republicans have also made) has to do with capital formation.
If corporate income taxes and capital gains taxes fell, then shareholders would get to keep a higher portion of corporate profits. That means investors might be willing to offer more capital to businesses, and thereby help them expand — which could grow jobs and wages.
This, too, is a difficult argument to swallow, at least in the current economy. By nearly every available metric, firms are not exactly starved for capital.
Long-term price-to-earnings ratios are high. Corporations are sitting on mountains of cash that they can’t find good uses for.
Debt remains cheap, and businesses generally say they don’t need more of it. The most recent National Federation of Independent Business economic trends survey found that only 3 percent of small-business owners said they could not satisfy all their borrowing needs. That’s close to an all-time low.
Allowing a repatriation of profits held abroad through a tax holiday or a new, ultra-low corporate tax rate would likewise do little to stimulate corporate investment (or hiring). Last time we did that, the cash went mainly into stock buybacks.
Trump nonetheless alluded to this pitch in his Wednesday tax speech, which was, as expected, all bluster and few specifics.
The bulk of Trump’s tax-cut speech, though, involved a relatively new pitch: an incoherent screed about trade.
“We must reduce the tax rate on American businesses so they keep jobs in America, create jobs in America, and compete for workers right here in America, the America we love,” he proclaimed.
Trump essentially argued that U.S. taxes — and not, say, wages or other input costs — are driving firms to invest and hire abroad rather than here. But that argument would make sense only if the United States didn’t tax worldwide earnings, as we currently do.
If you’re an American company, it doesn’t matter if you manufacture here or in China; your worldwide profits are still taxed in America, at least at the point when you try to return money to shareholders.
Trump clearly knows this because he also complained about worldwide taxation in his speech.
Granted, there’s a lot of uninvested cash sitting abroad, not yet returned to shareholders, that corporations are not currently paying taxes on. But if those corporations brought that money home today to build a factory or hire more American workers, they could already deduct those costs and ultimately wipe out the tax bills on the income they brought back in. Regardless of what the tax rate is.
Every quarter Apple could always send less money to Ireland and build more facilities in the United States. U.S. corporate income-tax rates don’t change that calculation.
Not that any of this matters a whit to our Marketer in Chief. He’s seen the other sales pitches fall flat, so naturally he’d try to shoehorn an amorphous tax plan into his usual, all-purpose policy pitch: America good, foreigners bad, now give me what I want.
Catherine Rampell’s email address is crampell@washpost.com. Follow her on Twitter, @crampell.
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