Two Cheers for Corporate Tax Cuts

By Marco Rubio

Wednesday, May 2, 2018

Overall, the Republican tax-cut bill has been good for Americans. That is why I voted for it. But it could have been even better for American workers and their families.

The central reason why it wasn’t is that in the new economy, it isn’t enough to just cut taxes; you have to cut the right ones.

During the tax-cut debate, when the rival priorities of committing fully to a 20 percent corporate income-tax rate or allowing full and immediate expensing for all business investments emerged, it was the former that won out. This choice may seem small, but it speaks volumes about where supply-side priorities were, and where they could have been.

Full expensing is a tax cut for businesses planning to make new investments in the United States, while a corporate income-tax rate cut is an across-the-board windfall for capital, no matter its use. By allowing businesses to deduct their capital investments, full expensing better increases the value of investments that are tied to American labor, while a corporate income-tax rate cut increases the return to capital regardless of its country of origin or whether it will create American jobs.

The comparison is instructive because it shows how the tax bill might have put less focus on cutting the statutory corporate tax rate, but been at least equally focused on investment, wages, and the American worker. The two are not the same. Similarly, the amendment Senator Mike Lee (R., Utah) and I offered would have shifted the bill’s focus toward the immediate take-home pay of working-class families with children.

Both approaches are rooted in skepticism about the belief that no-strings-attached corporate tax cuts are always in the best interest of American workers and families.

This concern is especially valid given the realities of the 21st century. Big companies today aren’t what they were in the old economy. The cash windfall of a corporate tax cut can drive investment in multinational corporations’ foreign supply chains just as easily as it can to go to American factories and warehouses. And stock buybacks, by increasing the share value of foreign shareholders and driving new investment to its most productive use regardless of where or what that use might be, isn’t guaranteed to go fully to Americans’ paychecks. When this happens, it can encourage arbitrage, not American productivity.

We in the conservative movement need to stop viewing big companies like they’re all General Motors in the 1950s.

Likewise, not all new investment is created equal when it comes to boosting wages. Increasing technological advancement makes investment more likely to go into automated machines. And without a more balanced system of international trade, the jobs created to make these machines and design new artificial intelligence and robots will be made overseas, not here.

An updated framework for supply-side tax cuts would apply President Ronald Reagan’s great aphorism: Trust, but verify. We need an internationally competitive corporate tax rate, but the gains from corporate tax cuts should be geared to benefit Americans as much as possible.

Putting a little bit less priority on a blank-check corporate tax-rate cut, in order to increase the purchasing power and stability of working-class families by increasing the child tax credit, would have been a better guarantee for American families, as I said during the tax bill’s debate.

Targeting corporate tax cuts at new investment in the United States, instead of mere stock-market presence, would be a better guarantee for high-growth American companies and their workers. A territorial tax system that limits the ability of multinationals to arbitrage in low-tax foreign countries would be a better guarantee for reducing the American trade deficit.

Conservative principles still work. But they need to be applied to the characteristics of a new and very different economy. Globalization and technology have already disrupted the lives of millions of working Americans. Advances in automation and artificial intelligence are only going to exacerbate these trends. If conservatism is going to be relevant and attractive in the new economy, it needs to understand how much our economy has changed and address the opportunities and the challenges created by these developments.