By PAUL KRUGMAN – New York Times.
Watching the evolution of economic discussion in Washington over the past couple of years has been a disheartening experience. Month by month, the discourse has gotten more primitive; with stunning speed, the lessons of the 2008 financial crisis have been forgotten, and the very ideas that got us into the crisis — regulation is always bad, what’s good for the bankers is good for America, tax cuts are the universal elixir — have regained their hold.
And now trickle-down economics — specifically, the idea that anything that increases corporate profits is good for the economy — is making a comeback.
On the face of it, this seems bizarre. Over the last two years profits have soared while unemployment has remained disastrously high. Why should anyone believe that handing even more money to corporations, no strings attached, would lead to faster job creation?
Nonetheless, trickle-down is clearly on the ascendant — and even some Democrats are buying into it. What am I talking about? Consider first the arguments Republicans are using to defend outrageous tax loopholes. How can people simultaneously demand savage cuts in Medicare and Medicaid and defend special tax breaks favoring hedge fund managers and owners of corporate jets?
Well, here’s what a spokesman for Eric Cantor, the House majority leader, told Greg Sargent of The Washington Post: “You can’t help the wage earner by taxing the wage payer offering a job.” He went on to imply, disingenuously, that the tax breaks at issue mainly help small businesses (they’re actually mainly for big corporations). But the basic argument was that anything that leaves more money in the hands of corporations will mean more jobs. That is, it’s pure trickle-down.
And then there’s the repatriation issue.
U.S. corporations are supposed to pay taxes on the profits of their overseas subsidiaries — but only when those profits are transferred back to the parent company. Now there’s a move afoot — driven, of course, by a major lobbying campaign — to offer an amnesty under which companies could move funds back while paying hardly any taxes. And even some Democrats are supporting this idea, claiming that it would create jobs.
As opponents of this plan point out, we’ve already seen this movie: A similar tax holiday was offered in 2004, with a similar sales pitch. And it was a total failure. Companies did indeed take advantage of the amnesty to move a lot of money back to the United States. But they used that money to pay dividends, pay down debt, buy up other companies, buy back their own stock — pretty much everything except increasing investment and creating jobs. Indeed, there’s no evidence that the 2004 tax holiday did anything at all to stimulate the economy.
What the tax holiday did do, however, was give big corporations a chance to avoid paying taxes, because they would eventually have repatriated, and paid taxes on, much of the money they brought in under the amnesty. And it also gave these companies an incentive to move even more jobs overseas, since they now know that there’s a good chance that they’ll be able to bring overseas profits home nearly tax-free under future amnesties.
Yet as I said, there’s a push for a repeat of this disastrous performance. And this time around the circumstances are even worse. Think about it: How can anyone imagine that lack of corporate cash is what’s holding back recovery in America right now? After all, it’s widely understood that corporations are already sitting on large amounts of cash that they aren’t investing in their own businesses.
In fact, that idle cash has become a major conservative talking point, with right-wingers claiming that businesses are failing to invest because of political uncertainty. That’s almost surely false: the evidence strongly says that the real reason businesses are sitting on cash is lack of consumer demand. In any case, if corporations already have plenty of cash they’re not using, why would giving them a tax break that adds to this pile of cash do anything to accelerate recovery?
It wouldn’t, of course; claims that a corporate tax holiday would create jobs, or that ending the tax break for corporate jets would destroy jobs, are nonsense.
So here’s what you should answer to anyone defending big giveaways to corporations: Lack of corporate cash is not the problem facing America. Big business already has the money it needs to expand; what it lacks is a reason to expand with consumers still on the ropes and the government slashing spending.
What our economy needs is direct job creation by the government and mortgage-debt relief for stressed consumers. What it very much does not need is a transfer of billions of dollars to corporations that have no intention of hiring anyone except more lobbyists.