The first part of Saturday's (1/14/12) Bulls and Bears focused on EU downgrades. Sudddenly, the topic turned to cutting corporate taxes in order to create jobs. Predictably, cutting taxes was presented as a panacea that two of the five panelists argued against.
Tobin Smith made like George H.W. Bush in 1988. "Read my lips, cut corporate taxes… Let's just go to the history books… In 1984, …(Ireland) went to a flat rate - 15% versus a Euro with 30, 35%. They grew their economy 4 times faster. Their GDP kicked butt for 22, 23 years. We've seen it in every other country that have done this… It's time to do it now… If we don’t, we are going to have some real jobs issues here because Europe is going to be negative for the next six months." He later said, “That lower(corporate tax) rate means by the way, we’ll probably have a Dow 15,000 by the time we get done with it.
Christian Dorsey, a News Hound Top Dog, was terrific as usual. He said, "If all you're interested in is increasing corporate profits, sure, cut the tax rate. But if you're really interested in creating jobs, then you need to do a lot more. The reason that businesses are not hiring right now has less to do with their tax rate but more to do with the lack of aggregate demand out there in the economy. Even if you increase profits by cutting taxes, you’re still not creating a market for those goods and services. That’s the real, key issue… What we really need to do to increase employment at home is to improve the employment situation, by getting more people back to work and seeing their wages rise again." Dorsey supported lowering the corporate tax rate, provided loopholes get closed. "To describe lowering the corporate tax rate as the cure for our employment situation is just disingenuous," he said.
Gary B Smith said, "Even if we lowered (the corporate tax rate to 25%), look what would happen… In 1997 a joint task force in Congress studied the whole issue... They found that when no less a person than President Kennedy lowered tax rates across the board, what happened? Employment went up and revenues went up also. The same thing happened under President Reagan's tax cuts. Unemployment in fact dropped from 10 to 6% and revenues went up… I don't see why we don't do it. It makes perfect sense."
But as Paul Krugman noted, real revenue growth was lower in the 1980's than in the Clinton era or the mid to late 1970's.
Jonas Max Ferris argued, "I'm for low corporate tax rates… But our corporate tax rate is actually pretty low when you adjust for all the deductions. The top 200 companies pay an average rate of like 18, 19 percent. They don't pay this 35% rate. We have more deductions than other countries."
Ferris also noted that "Ireland happens to be the poster child for the first European crash… I don’t know if it’s the model of success you want to mimic.” He said if we lowered our corporate rate and didn't get rid of the deductions, "We would see our rating cut again."
NC Policy Watch demolished the Smith brothers’ argument in a blog post noting that states with rock-bottom tax rates do not necessarily equal a good economy. “Public investments help attract business, and when you slash taxes, you have to cut services. A well-educated and healthy workforce is fundamental to business success, and those qualities require public investment,” notes author Jeff Shaw.