Press Releases

News from EPI New FAQ explains why cutting taxes for corporations and the wealthy does nothing to help the middle class

In a new FAQ, EPI Research Director Josh Bivens and Tax and Budget Analyst Hunter Blair answer a series of questions about taxes and claims that tax cuts can help middle-class families. Bivens and Blair debunk several myths that are continually cited in favor of tax cuts, including the notion that the U.S. corporations pay significantly more than their international peers, and the argument that cutting corporate taxes would boost job creation, wage growth, or investment.

“Simply put, tax cuts—particularly those directed towards the rich and corporations like last week’s proposal from the `Big Six’—are not a durable solution to any economic problem faced by working families,” said Bivens. “And they would make some problems worse. The biggest economic problem faced by the vast majority of Americans in recent decades has not been what taxes have taken out of their paychecks, it’s what employers have failed to put in. Solving the problem of near-stagnant wages, not cutting taxes for the wealthy and corporations, should be Congress’s top economic priority.”

Bivens and Blair point out that, because the bulk of corporate tax cuts will benefit the richest Americans who are less likely to spend additional income, they are unlikely to create new jobs. Furthermore, corporations are not investing in equipment and technology because of weak demand, not low profits—so cutting taxes is unlikely boost investment or wage growth.

“Republicans claim their tax plan will boost ‘competitiveness,’ help ‘small businesses,’ and ‘simplify’ the tax code,” said Blair. “But these terms are meaningless hand-waving at best, and willful distortions at worse.”

Bivens and Blair take on the issue of deferral as well—a loophole which is made permanent in the Republican tax plan. They argue that Congress should stop corporations from holding profits offshore by closing the deferral loophole and taxing worldwide profits when they are earned.

Lastly, Bivens and Blair point out that tax cuts feed misguided fear mongering about federal budget deficits, which leads in turn to pressure to cut vital programs Social Security, Medicare, Medicaid and the Affordable Care Act. They point out that while there’s no compelling economic reason why we should be worried about the deficit at present, there are political concerns. Tax cuts will feed the conventional Beltway wisdom that we cannot afford vital social insurance and public investment programs. This wisdom is clearly wrong, as the United States is both one of the richest nations in the world and one of most lightly taxed. But until it is finally abandoned, each new round of tax cuts will lead to pressure on valuable social insurance and public investment.