As the COVID-19 pandemic still surges in the U.S., resulting in more than 385,500 deaths in the country and rising poverty rates, executives list potentially higher corporate taxes among their top concerns in 2021.
U.S. chief executive officers see a potential increase in corporate tax rates as among the top concerns to their business this year, according to a report Thursday by the nonprofit the Conference Board, which surveyed more than 1,500 executives around the world in late 2020.
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U.S. CEOs in the survey also ranked the pandemic, vaccine availability, the recession, regulation and changing shopping trends among their other top concerns. Notably, they ranked broader social and inequality issues lower on their list, including the impact of climate change, social justice issues, the lack of accessible child care and gender inequality.
While it may be intuitive to expect some reversal from the era of President Donald Trump tax cuts, economists and tax experts say it is misplaced to highlight taxes as a prominent concern for businesses in an era of intertwining public health, inequality and climate crises. The Biden administration is reportedly expected to reveal plans on Thursday for trillions of dollars in spending to address the pandemic.
“If you’re an oddsmaker, the odds that the U.S. corporate taxes would increase this year are higher than they were a year ago, so it’s narrowly accurate to say that a corporate tax increase is more likely than it has been in some time,” said Matthew Gardner, senior fellow at the non-partisan tax policy nonprofit Institute on Taxation and Economic Policy.
“But the ranking of threats that we see in this report really does reinforce the most fundamental criticisms of U.S. business leaders, which is that they have a really myopic view of what’s good for America,” he said.
Progressive research groups have generally warned that the pandemic has underscored existing inequalities, and made financial instability a more dire concern for low income Americans. The Census Bureau’s Household Pulse Survey in December showed that roughly 29 million adults in the U.S. reported experiencing food insecurity, according to the Center on Budget and Policy Priorities, which is tracking the rise of poverty in the U.S. during the pandemic.
In October, the Center on Poverty and Social Policy at Columbia University found an increase in the monthly poverty rate during the pandemic, from 15 to 16.7 percent as of September 2020.
“The lack of accessible child care, climate change, inequality…all these things are pretty basic existential threats for American workers, families and America as a nation,” said Gardner. “And the only way they can be meaningfully solved is through government spending and intervention, and an effective government requires an effective tax system.”
Corporate income tax revenues in America have dropped steadily and significantly since the 1940s, according to researchers tracking data from the Office of Management and Budget. In the late 1940s, corporate income tax revenue peaked at higher than 7 percent of gross domestic product, while in 2019, that percentage had sunk to 1.1 percent.
In 2017, the Trump administration’s tax cuts through the Tax Cuts and Jobs Act slashed the maximum corporate income tax rate to 21 percent, down from 35 percent.
But the effective corporate tax rate — the actual federal income taxes that many large corporations pay in effect, can be much lower and hard to gauge, experts said. In fact, that was one of the stated rationales behind lowering the maximum tax rate, since corporations were in effect paying lower rates anyway, said Dean Baker, senior economist at the Center for Economic and Policy Research.
“The idea of lowering the tax rate wasn’t objectionable as long as it went along with eliminating loopholes,” said Baker. “We reduced the rate — but apparently most of those loopholes were still there.”
Groups including the CEPR have sought to track the tax cuts, and how they translated to revenues in practice. In January 2020, the Congressional Budget Office estimated a $234 billion influx in corporate taxes, “less than 11 percent of projected profits,” Baker wrote for the CEPR last March.
The Conference Board survey’s revelations about executives’ concerns also appears at odds with corporate America’s statements in recent years to signal an apparent reevaluation of its priorities, experts pointed out.
In 2019, the Business Roundtable, a group led by JP Morgan Chase & Co. CEO Jamie Dimon of hundreds of business leaders, had issued a statement about how corporations should move “to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders.”
“[The Conference Board survey] is an indication that, as a group, they are not living up to the broad social goals they’re espousing,” said Gardner of ITEP. “When you’re keeping taxes low, you’re actively working against these other more important social objectives.”
Corporate tax cuts have also failed to translate to consistent wage growth for workers, with the median wage rising just 1 percent in 2019 to $19.33 an hour, or roughly $40,000 annually, according to the non-partisan nonprofit Economic Policy Institute.
Economists who have studied the impact of tax cuts generally affirm those findings.
“The slashing of the corporate rates over the last several years resulted in a decline in receipts, but a windfall for shareholders,” said Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute. “When we cut taxes for corporations, we transfer money from the Treasury, to the stock accounts and brokerage accounts of foreigners and the richest Americans.”