Paying high tax rates doesn’t stifle job creation at the country’s biggest, most profitable companies and low tax rates seem to be more correlated with job losses, according to a new report from the Center for Effective Government.
The 30 Fortune 500 companies that paid the highest tax rates from 2008 to 2010 created about 200,000 jobs from 2008 to 2012, the researchers found. By contrast, the 30 companies with the lowest actual tax rates in that time frame shed a collective 51,289 jobs.
The report compared tax data compiled by Citizens for Tax Justice with employment data from corporate filings with the Securities and Exchange Commission. The tax data include only companies that turned a profit in each of the three years in question. The 30 high-tax companies each paid at least a 33 percent tax rate over the time frame in question, and only eight of them saw a net decrease in employees. In the low-tax grouping, just two of the 30 profitable companies paid any federal taxes, and a full 15 of them cut their payrolls. Many of the companies report their employment data on a global basis, so the jobs figures are not necessarily representative of solely American job creation.
Despite that fuzziness, the report’s findings align with previous research on the linkage between corporate tax rates and economic success. There is no association between lower rates and higher growth. Making corporations pay higher tax rates makes the overall tax code more progressive, which is good for the poor and working-class.
There is ample room to raise the rates corporations pay without necessarily raising the on-paper tax rate. That’s because companies have gotten very good at paying far less than the top-line corporate tax rate of 35 percent. The gulf between the statutory tax rate and the effective tax rate — what companies actually pay the government — is massive. About 11 percent of the S&P 500 paid a zero percent tax rate over the past year, in many cases due to flagging sales. But even among profitable corporate giants, effective tax rates are about a third of the statutory rate. At 12.6 percent, the effective tax rate paid by large, profitable companies in 2010 was lower than what the median American middle-class household paid to the tax man.
So far, none of this evidence has curbed corporate enthusiasm for cutting tax rates. Business interests that want corporate tax reform have gone on the road to campaign for a cut, sometimes even holding events at companies like FedEx, which paid a 4.2 percent effective tax rate on $9 billion in profits over the past five years.