Opinions divide on how effective corporate tax cut will be

Global Business

The U.S. currently has the highest corporate tax rate among developed nations. This week, the U.S. House of Representatives passed a bill that would cut the federal corporate tax rate from 35 percent to 20 percent in 2018.

Republicans argued this will boost the U.S. economy and spur hiring and wage growth. But critics have said there is no data to support this would happen and it would instead provide a windfall for the wealthy.

CGTN’s Karina Huber has more.

U.S. companies that include Apple, Microsoft and GE hold an estimated $2.5 trillion in cash abroad. That’s roughly 14 percent of U.S. GDP. The money is parked outside of the United States to avoid being hit by a big tax bill.

America’s federal corporate tax rate at 35 percent is the highest among developed nations. U.S. President Donald Trump is seeking to cut that rate to 20 percent to drive capital investment back to the United States.

“Now having that extra capital in the United States will make American workers more productive and that will drive up their wages so there will be some benefits for Americans throughout the income distribution if we cut the corporate tax rate,” Alan Viard from American Enterprise Institute said.

That’s the point of view from conservative groups. Liberal leaning groups don’t believe lowering the corporate tax rate, which would increase profits, will lead to wage increases.

“In the current economy, corporate after-tax profits are already sky-high and yet investment is low as a share of the economy. This theory is asking us to believe that if we just boosted those profits a little bit higher, we’re going to finally get the investment that we need and I just don’t believe that’s the case, ” Economic Policy Institute Budget Analyst Hunter Blair said.

NYU Stern Economics professor Lawrence White believes lower corporate tax rates CAN have a positive impact on jobs but NOT in the current environment.

“At the moment, we are in a low-interest rate, easy-financing environment and if companies wanted to expand, they’ve got lots of ability to do that right now,” he said.

President Trump also wants to incentivize companies to bring their overseas cash back to the United States. He says working Americans would benefit from the repatriated money.

But the last time U.S. companies were given a tax holiday in 2004, the money didn’t go into hiring or wage increases. It largely went to into share buybacks and dividends. That’s because companies are free to spend their money however they want. Experts say if companies get a tax holiday without any strings attached, it will be shareholders not workers who will be rewarded.