How not to let companies kill Biden’s agenda

I am not one of those liberals who believe that corporate greed is the root of all evil. It is the root of only a certain evil; there are other dark forces, in particular white nationalism, stalking the American body politic.

But corporate money is surely the bad guy behind the last hurdle on President Joe Biden’s agenda: Senator Kyrsten Sinema’s opposition to any backsliding from Donald Trump’s big corporate tax cut in 2017.

After all, Sinema, who was in the House of Representatives at the time, voted against this tax cut. And she attacked the tax cut the following year when she ran for the Senate. With the corporate tax increase enjoying overwhelming public support, it’s hard to see another reason for its turnaround than the corporate lobbying blitz against Build Back Better.

It is a heartbreaking story. But here’s what you need to know: While Trump’s tax cut was bad and should be reversed, recovering lost income isn’t essential right now. If the key elements of the Biden program – investing in children and protecting the planet from climate change – are to be paid for in part by borrowing, that’s okay. It would certainly be better than not making those investments at all.

About this tax cut: The Tax Cuts and Jobs Act was sold with claims that a lower corporate tax rate would encourage U.S. companies to return the money they invested overseas , leading to an increase in business investment which would increase productivity and wages. It was a slightly more plausible story than the usual rationale for tax cuts, the claim that they will give already wealthy people an incentive to work harder. But none of this happened.

On paper, the tax cuts act seemed, briefly, to trigger a repatriation of money to the United States. For a few quarters after the tax cut, US-based multinationals reported that their overseas subsidiaries were divesting and sending their profits home via increased dividends paid to their parent companies. But this was a temporary hang-up, not a lasting change in behavior.

And there is no indication that the tax cut resulted in an increase in business investment here beyond what you would expect given the economic situation.

The most plausible interpretation of the data is that the corporate tax cut has had virtually no economic effect. While US companies claim to have invested large sums of money overseas, much of it is “shadow” investments, an accounting fiction perpetrated to shift reported profits to low-tax jurisdictions like Ireland. A lower US tax rate reduced the incentive to support this fiction, so some of the money was reallocated to the parent company’s books. But nothing real really happened.

So Trump’s tax cut was just the latest in a long line of giveaways to the wealthy that were sold under false pretenses. And Sinema should be ashamed of helping corporate interests perpetuate this scam.

That said, the Biden program does not need the income from a higher corporate tax rate.

The budget resolution that will move this agenda forward if Sinema and Senator Joe Manchin can be involved does not require that all future investments be fully paid. In fact, it allows you to borrow up to $ 1.75 trillion. What if opposition from the management wing of the Democratic Party – can we stop calling them “moderates”? – avoid tax increases, better to borrow than not to invest.

Should we fear that the increase in borrowing could threaten the solvency of the United States? No. The interest rate on long-term federal debt is only about 1.65%, so even adding $ 1.75 trillion in debt would only mean about $ 30 billion added to interest charges. annual – 0.15% of gross domestic product, which is insignificant.

And even this calculation greatly overestimates the true debt burden, which should be calculated using the real, i.e. inflation-adjusted, interest rate, which is negative.

What about fears that deficit-financed spending may be inflationary? Again, it’s important to do the math. If the United States were to end up borrowing an additional $ 1.75 trillion, it would be over the course of a decade, not a single year – and the Congressional Budget Office projects total GDP of $ 288 trillion over the next. decade. So while it may seem like we are talking about huge deficit spending, the extra deficit would only be 0.6% of GDP, which is just not a big deal.

In fact, given the arithmetic, you might wonder why Biden always wanted to raise taxes enough to fully pay for his investment program. The answer, I think, was more about politics than the economy – that presenting his plans as deficit neutral was supposed to reassure politicians who have not caught up with current mainstream economic thinking and still view budget deficits as a major threat. .

At this point, however, it looks like a final budget deal, if there is one, will need to involve substantial borrowing. And that’s OK. We can deplore the influence of companies which can block certain justified tax increases, but borrowing to invest for the future is not a bad thing in itself. Hey, businesses do it all the time. Democrats should therefore go.


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