Bloomberg News

Labor-Funded Group Says Lower Code Rates Don’t Add Jobs: Taxes

December 09, 2013

Lower corporate tax rates don’t spur companies to hire more workers, a group opposed to sharp cuts in corporate tax rates said in a study that joins the growing debate over revising the U.S. tax code.

Corporations with some of the highest effective tax rates created almost 200,000 jobs between 2008 and 2012, while those that paid little or no income tax shed tens of thousands of jobs during the same period, according to the Washington-based Center for Effective Government.

The center, funded by labor unions and foundations that back active government involvement in the economy, said a survey of 60 large, profitable corporations showed that 22 of the 30 companies with the highest effective tax rates added jobs, while eight cut positions during the period, Bloomberg BNA reported.

“The notion that reducing the taxes corporations pay on their profits will create new jobs in the U.S. is just not borne out by the evidence we examined,” Katherine McFate, president and CEO of the Center for Effective Government and one of the co-authors of the report, said in a statement.

The center’s study, released last week, comes as congressional committees consider comprehensive changes to tax laws. Congressional Republicans and the Obama administration agree that the federal corporate tax rates should be cut from 35 percent, although Republicans call for a top rate of 25 percent and the administration aims for a ceiling of 28 percent.

Some corporate officials have told Congress they are willing to part with business tax breaks if that will help lawmakers trim the top rate to 28 percent or lower. One group promoting that position is the Alliance for Competitive Taxation, which advocates a top rate of 25 percent and elimination of tax preferences. Its members include Alcoa Inc., Verizon Communications Inc. (VZ:US) and Pfizer Inc. (PFE:US)

Study Criticized

An adviser to the ACT coalition questioned the center’s study, saying in an interview that the sample of 60 companies was too small and the economic period too short for the results to have validity. The adviser requested anonymity to comment because he wasn’t authorized to speak publicly about the report.

The center in its report said big retailers added the most jobs during the 2008-2012 period, including Lowe’s Cos Inc. (LOW:US), which added 28,820 jobs, and Whole Foods Market Inc., which added 20,100.

Lowe’s faced a three-year income tax rate of 36.2 percent, while Whole Foods had a tax rate of 36.3 percent, according to the study. Job figures for Lowe’s reflected global hiring, as the company didn’t disclose U.S.-specific numbers, the center said.

Best Buy Co. paid one of the highest tax rates in the study, at 39.3 percent, and added 17,000 jobs during the period, the center said in the report, “The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation.”

Rates Vary

Companies’ tax rates can vary for multiple reasons, including state income taxes and tax credits and deductions they can receive based on their activities.

The center said effective tax rates generally have fallen since 1948, while job growth has cycled up and down.

In addition, the group said, past tax “holidays” allowing the repatriation of foreign-based profits by U.S. multinational corporations to the U.S. haven’t resulted in new hiring.

In releasing the study, the center said Congress should consider other changes to the corporate tax code, including discouraging companies from keeping profits overseas.

“Ensuring that all corporations pay taxes on their profits will provide our government with the revenue needed to invest in modernizing the transportation, information, communications, and energy infrastructure the economy needs to grow,” Scott Klinger, a co-author of the report, said in a statement.

Committee Work

House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, and Senate Finance Committee Chairman Max Baucus, a Montana Democrat, have been leading the effort to redo the tax code. Chances appear slim that the two will achieve their goal of advancing revision proposals their committees in 2013, with the year drawing to a close.

“I never rule anything in or out,” Camp told reporters after a meeting with Baucus last week. “Obviously, we’re running out of time this year.”

Baucus said he and Camp are “comparing notes” and that he is considering releasing more drafts of potential code changes before year’s end.

He released a draft bill last month that would lower the corporate tax rate by an unspecified amount, end a rule that has encouraged companies to accumulate about $2 trillion in earnings in their foreign subsidiaries and impose a 20 percent tax on those stockpiled profits.

That plan encountered immediate criticism from the business community. The proposals “increase complexity and move our antiquated tax system even further from international norms,” Bruce Josten, the top lobbyist at the U.S. Chamber of Commerce, said in a statement.

To contact the reporter on this story: Marc Heller in Washington at mheller@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com


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    (Verizon Communications Inc)
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  • PFE
    (Pfizer Inc)
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