New Study Confirms that Lower Corporate Tax Rates Don’t Create Jobs

Corporate executives love to peddle the notion that they need to have their low tax payments reduced even further, even as the share of GDP represented by company profits is at unprecedentedly high levels. In fact, corporations paid between 5% and 6% of GDP in taxes in the early 1950 versus a trivial 1.3% in 2010. The GAO reported earlier this year that the effective Federal tax rate paid by large corporations in 2010 was 12.6%, versus a nominal rate of 35%. And roughly 10% of large companies pay no Federal tax at all.

One of the arguments made by big companies in favor of making their low payments even low is that they’d go out and create more jobs. This is clearly spurious. Large companies are already awash with cash, thanks in no small measure to taking advantage of the Fed’s largesse and issuing bonds. They could invest and create jobs with the dough they already have if they were so inclined. But in fact, large corporations have been shedding jobs for some time, since Wall Street reacts positively to downsizing and higher stock prices lead to bigger executive pay packages. And don’t blame the crappy economy. Big companies weren’t investing even in the last expansion; they had abandoned the role of capitalists and were net saving. Large companies have been more keen to buy back stock than invest in the business of their business.