by Henry Oliner
Corporate tax cuts are opposed because the company will not spend it as the political brokers wish. There is no guarantee they will use it to create jobs. But having a more competitive tax rate may make it more likely that a company will remain or locate in this country. That seems to be at least a first step to creating jobs here.
The opposition points to big corporations that may use the money to buy back stock instead of hiring people. Most companies do not buy back stock. It is a fallacy to pick the 100 largest companies and insinuate that the other 1.7 million C corps and 7.4 million partnerships and S-Corps will do the same.
Buy backs, the opposition contends, and driven by corrupt compensation programs that reward executives for driving up the stock price. Share buybacks are an easy tool to boost bonuses. I agree that this is a bad compensation system, but fewer and fewer corporations use this system, and the vast majority do not. Warren Buffet and Berkshire Hathaway do not use this in any of their companies.
The bigger reason for buybacks is that uncertainty about tax policy and regulations make capital investment unattractive. Shareholders would prefer to make capital investments for longer term growth, but the risk from uncertainty suppresses such investment.
Generally, the time to buy back shares is when shares are undervalued, and money is relatively cheap. Money is still cheap, but shares are certainly not undervalued.
I prefer a simpler flatter broader system. But getting there will be at somebody’s expense, because it means getting rid of many special interest tax breaks.
Why is there a trigger to raise taxes if deficits grow, but not a trigger to cut expenses?
We should focus on all friction costs; taxes are only one. A better regulatory environment can be as stimulative without increasing deficits.
Simplifying the tax code can reduce the substantial compliance costs companies incur, again, without increasing the deficit. But simplifications will cost special interests the deductions they lobbied so hard to get and they will be very reluctant to relinquish.
In short, there can be no real reform or simplification without winners and losers. To insinuate otherwise is dishonest, but certainly not surprising.