Corporate tax breaks are exploding the federal deficit. Guess who profits from that

The most famous quip ever uttered about the federal budget is the one attributed to Sen. Everett Dirksen (R-Ill.), who served 34 years in the House and Senate until his death in 1969: “A billion here, a billion there; pretty soon you’re talking about real money.”

Dirksen didn’t actually say the second part of that quote, according to the keepers of the Dirksen archives. But as a description of the hand-wringing that commonly infects budget negotiations in Washington, it’s well put.

At this moment, after all, the federal government is shut down in part because Republican majorities in both chambers are fretting about the cost of extending subsidies for Affordable Care Act health plan premiums, which the Congressional Budget Office places at $350 billion over 10 years. Leaving aside that the extension would also increase the number of Americans with health insurance by 3.8 million, the price is dwarfed by the cost of some other initiatives more cherished by the GOP.

One was pinpointed in an analysis the CBO issued on Oct. 8. It’s the reduction in corporate taxes enacted by the Republican Congress in July. The corporate tax cut, the CBO calculates, will increase the federal deficit by $77 billion this year alone.

Under the circumstances, it’s only fair to ask what the nation gains from giving corporations another big tax break, on top of the historically generous tax breaks granted corporations by the Tax Cuts and Jobs Act of 2017, also a Republican project. Thanks to business provisions in that measure, including a permanent cut in the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the federal government forfeited about $188 billion in revenue last year, according to the Peter G. Peterson Foundation.

So what have Americans gained from these giveaways? Fans of the 2017 cuts and the further cuts in this year’s budget bill maintain that they triggered higher economic growth, but many economic analyses indicate that any growth spurts were short-lived and modest at best. What’s indisputable is that the 2017 measure has failed to pay for itself. That’s according to the Committee for a Responsible Federal Budget, a budget-hawk think tank that has also been connected to the Peterson Foundation.

To the extent that any economic growth can be traced to corporate tax cuts in 2017 and this year, the unanswered question is: Whose economy?

The benefits from the 2017 bill and the most recent budget bill track those of most GOP tax initiatives dating back at least to Ronald Reagan’s tax cuts. They flow mostly to the wealthy, including top-level corporate executives.

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These people and institutions are in the catbird seat of economic policy now. The rest of us get left behind. Although architects of tax cuts always claim that the resulting economic growth will be spread widely, showing up in wage gains among other metrics, that’s mythical. According to a 2022 analysis by researchers at the nonpartisan Congressional Joint Committee on Taxation and the Federal Reserve, workers’ earnings gains from the 2017 cuts are “concentrated in executive pay” and the best-paid 10% of employees.

The researchers found that about 56% of the gains from the 2017 tax cuts went to company owners (i.e., shareholders), 12% to executives, 32% to high-paid workers and 0% to low-paid workers. “Overall,” they wrote, “the results imply that corporate tax cuts improve aggregate efficiency but exacerbate inequality.”

From a corporate standpoint, the most important provisions of the budget bill Donald Trump signed on July 4 include allowing businesses to fully and completely expense depreciable assets this year, if they’ve been placed into service as of Trump’s inauguration, rather than spreading the depreciation over several years. That can turbocharge their tax deductions. Another provision allows businesses to expense research and development spending up front.

Those provisions and other business-friendly changes mean that companies in the Standard & Poor’s 500 index will receive tax breaks of about $148 billion this year, in the estimation of tax analyst Dave Zion. That’s necessarily a rough estimate, Zion has said, since most companies haven’t yet disclosed the actual effects and may not until their third-quarter earnings reports, which will be dribbling out over the next couple of weeks.

Still, some second-quarter corporate earnings calls with investment analysts this summer bristled with braggadocio about the tax cuts they were expecting to pocket, courtesy of the budget bill. According to the Institute on Taxation and Economic Policy, which compiled many of the reports, the benefits are associated with the budget law’s “absurdly generous bonus depreciation measure, which allows companies to immediately write off the cost of capital investments.”

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For example, AT&T told investors in July that it expects to reap tax cuts of $6.5 billion to $8 billion from this year through 2027, due to the tax breaks in the budget act, down from the $12.5 billion it originally expected to pay. T-Mobile, another major telecommunications company, said it expected to cut its tax bill by $1.5 billion next year.

MGM Resorts told investors that its gain from one key provision of the budget bill, an accelerated schedule for depreciable expenses, would change its tax picture from a liability of about $100 million this year to a refund of $100 million. “That’s a pretty meaningful change,” Jonathan Halkyard, MGM’s chief financial officer said, “in large part because of this bill — this law.”

Some companies that were forthright about their tax gains were rather vague about how they would spend the additional cash. T-Mobile said its gain would be “deployed thoughtfully, guided by our capital allocation philosophy.”

AT&T said that it would invest “a portion” of the cash savings “into our network” and would contribute $1.5 billion to its pension plan by the end of next year, though it acknowledged that its pension plan would remain underfunded until the early part of the next decade; the contribution over the next year would bring it up to about 95% funded.

Then there’s Lockheed Martin, which told investors it expected to see tax benefits of $400 million to $600 million from the budget bill, simultaneously announced that its board had raised its quarterly stock dividend by 4.5%, to $3.45 from $3.30, and authorized $2 billion in stock buybacks, bringing its fund for future buybacks to $9.1 billion.

The underlying rationale for corporate tax cuts has long been that American businesses were overburdened by taxes compared with their overseas colleagues. The 2017 tax cuts, it was said, were designed to redress the imbalance and make American enterprises more globally competitive. That’s not how things developed.

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It was true that the 2017 reduction of the corporate tax rate to 21% brought America into line with the statutory tax rate in other developed countries — call it the list price. The 21% rate placed America roughly in the middle of the pack of developed countries, which ranged from Switzerland (9%) to Australia (30%), with France, the Netherlands, Korea, Austria and Japan bunched at 23% to 25%. That helped account for a steady reduction of the corporate tax rate in the U.S., from 52% in 1959 to 35% in 1993 and 21% after 2017.

But those figures don’t account for the extensive tax breaks offered to many U.S. industries, which brought the average effective tax rate for big companies to just 16% in 2022, the Peterson Foundation calculated. Nor does that tell the whole story.

“The United States collects fewer revenues from corporations, relative to the size of the economy, than most similarly wealthy countries,” the Peterson Foundation determined. U.S. corporate tax revenue came to 1.6% of gross domestic product in 2022, lower than every member of the Group of 7 — that informal intergovernmental group of big industrial countries — except Italy, where it’s 1.3%.

So, we can say not only that billions of dollars is real money and trillions even more real, but also that the purported Dirksen quote begged the real question about the distribution of economic largesse in the United States. The question is who stands to gain most from the tax policymaking in Washington — corporations, their shareholders and their executives, most of whom don’t have to worry about whether cutting off Obamacare subsidies will leave them unable to afford healthcare, or the millions of Americans for whom the subsidies can often spell the difference between life and death?