The root cause of the drastic drop in tax rates for very wealthy Americans over the past 75 years is not what many people would guess. It’s not about lowering income taxes (although they certainly play a role), or lowering inheritance taxes (although they do matter too).
The biggest tax benefit for the wealthy has been the sharp drop in the corporate tax rate.
In the 1950s, 1960s and 1970s, many companies paid about half of their profits to the federal government. The money helped pay for the U.S. military and investments in roads, bridges, schools, scientific research, and more. “A dirty little secret,” Richard Clarida, an economist who is now vice chairman of the Federal Reserve, once said, “is that corporate income tax generates a fair amount of income.”
Since the mid-twentieth century, however, politicians from both political parties have supported cuts in the corporate tax rate, often under intense lobbying by American businesses. The cuts were so big – including during President Donald Trump’s 2017 tax overhaul – that at least 55 large companies paid no federal income tax last year, according to the Taxation Institute and economic policy. Among them: Archer-Daniels-Midland, Booz Allen Hamilton, FedEx, HP, Interpublic, Nike and Xcel Energy.
“Right now, the United States collects less corporate tax revenue as a share of economic output than almost any other advanced economy,” write Alan Rappeport and Jim Tankersley of The Times.
The rationale for tax cuts has often been that the economy as a whole would benefit – that lower corporate taxes would lead to business expansion, more jobs and higher incomes. But it didn’t work that way. On the contrary, economic growth has been poor since the 1970s. And incomes have grown even more slowly than the economy for all groups except the rich.
The US economy does not perform very well when tax rates for the rich are low and inequality is high.
Corporate taxes are taxes on wealth
Corporate taxes are such a large part of the overall taxes paid by the rich, as a large portion of their holdings are usually stocks. And as business owners, they do pay corporate taxes. Most of their income does not come from a salary or a bonus; it comes from the return on their wealth.
“In fact, the only tax that matters to these billionaires is the corporate tax they pay through their business,” Gabriel Zucman, an economist and tax specialist at the University of California at Berkeley told me. “The main reason the American tax system was so progressive before the 1980s is because of the heavy taxes on corporate profits.”
President Biden is now trying to reverse some (but not all) of the corporate tax cut. His plan would raise the corporate tax rate, punish companies that move profits overseas, and introduce a rule meant to prevent companies from paying taxes, among other things. The money would help pay for his infrastructure plan. “It’s honest, it’s fair, it’s financially responsible and it pays for what we need,” Biden said yesterday at the White House.
Pundits and critics are already raising legitimate questions about his plan, and there will clearly be a debate about it. Biden said he was open to compromise and other ideas.
But some of the criticism is quite clearly inconsistent with the facts: The long-term corporate tax cut doesn’t seem to have brought much benefit to most American families.
For more: If you haven’t yet listened to yesterday’s episode of “The Daily” – in which Jesse Drucker explains how Bristol Myers Squibb avoided taxes – I recommend it.
THE LAST NEWS
Lives lived: Beginning in the late 1950s, Lois Kirschenbaum was a nighttime staple at New York Opera, where her constant desire to be backstage helped her befriend some of the biggest stars. Of the industry. She died at the age of 88.
ARTS AND IDEAS
What does love look like
“Love is a slippery and intangible thing,” writes novelist Celeste Ng in an essay for The Times.
He is captured in moments that are both vivid and ordinary: parents drive an hour and a half to visit children and restock their refrigerators; a young couple on a motorbike at night; a sleeping child surrounded by toy dinosaurs.
In the wake of the rise in anti-Asian violence and harassment in the United States, nearly 30 Asian and Asian-American photographers have shared what love is like in their lives.
Photos are from Oregon, Hawaii, Georgia, Taiwan, Japan and elsewhere. There are glimpses of food, texts and emails from sleepy friends, loved ones – the “everyday, mundane little things that add to what I’ve come to understand as love, ”as An Rong Xu, photographer, writes.
Take some time with the photo report here.
PLAY, WATCH, EAT
What to cook
Tender jerk salmon on a baking sheet cooks quickly. For more dinner inspiration, check out the 17 Best Recipes The NYT Kitchen Team Made Last Month.
In the garden
Make friends with mushrooms, both the ones you plant and the ones that seem to pop up on their own.
What to read
“First Person Singular”, Haruki Murakami’s new collection of stories, allows “the author’s own voice – or what sounds like his own voice, wonderfully translated by Philip Gabriel – to enter the narratives,” writes David Means in a review.
Late at night
Late night hosts spoke about Rep Matt Gaetz.
Now is the time to play
Thanks for spending part of your morning with The Times. See you tomorrow. – David
PS New York City changed the name from Longacre Square to Times Square, in honor of the New York Times relocating to the area 117 years ago today. A Times story shamelessly predicted – but correctly – that the new name “is unlikely to be forgotten.”
You can see the first printed page of the day here.
Today’s episode of “The Daily” is about the Chauvin trial. On “Sway”, Diana Trujillo discusses the future of space travel.
Lalena Fisher, Ian Prasad Philbrick, Tom Wright-Piersanti and Sanam Yar contributed to The Morning. You can join the team at [email protected].
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