March 27, 2014

American states and cities and the people who live in them are hurting. States and cities were ravaged by the Great Recession of 2007-2009. While the recession is officially over, its damage remains deeply felt in families and communities across America. More than 10 million Americans remain out of work, nearly half of them for more than six months. More than half a million state and local public jobs disappeared because of budget cuts and have not been refilled.

America’s corporations are thriving. As people and businesses on Main Street continue to struggle, Wall Street and major corporations are flourishing, posting record profits and giving executives hefty bonuses.

After an initially strong response during the depth of the recession, federal revenue to states and cities has fallen by a quarter since 2010. As the federal stimulus program was winding down, a new breed of politician arrived in Washington and demanded cuts and caps on federal spending. Since 2011, federal aid to states for vital services like schools, roads, and environmental protection has been on a downward spiral. Two-thirds of the states now provide less educational funding per student than before the recession began.

But we can change this story. We’ve done it before. In the 1950s and 1970s when Republican presidents were in the White House, corporations paid a much larger share of the costs for the public services their businesses depend on. It’s time we go retro and tax corporations like it was 1973. Back when Richard Nixon was president, corporations paid 15 percent of the federal government’s bills (down from paying 32 percent of the costs of the federal government two decades earlier when Eisenhower sat in the Oval Office). Today, that number is below 10 percent. When corporations pay less, the rest of us pay more.

By closing tax loopholes, limiting deductions, and pegging corporation’s share of the cost of public services at the same level they paid a generation ago, we could raise hundreds of billions more each year to restore public services cut during the recession. At present, the debate around corporate tax reform is almost exclusively focused on how much corporations can “afford” to pay while remaining competitive. This must change. Last year, corporate profits reached record levels – more than 12 percent of GDP. At the same time, corporate taxes were 1.6 percent of GDP. Corporations can, and should, pay far more. At one time, they did. Even today, they pay higher taxes in other developed countries than they do in the U.S. If corporate tax payments equaled the same share of taxes as a percent of the economy as they did in 1953 when Eisenhower was president, they would have paid $957 billion last year, $683 billion more than they actually paid. If corporate tax payments as a share of the economy reflected the same share of GDP as they did in 1973, when Richard Nixon sat in the Oval Office, corporations would have paid $461 billion in 2013, $188 billion more than they actually paid. But even more modest increases would make a huge difference to the nation.

With just an additional $188 billion in corporate tax payments (which would raise corporate taxes to about 3.5 percent of GDP), we could restore state and local public services, pay for a robust program to replace our antiquated infrastructure, and create 2.5 million new jobs. That $188 billion could be used to refill the 667,000 jobs schoolteachers, first responders, librarians, highway crews, caretakers of public parks, and other state and city workers lost to budget cuts. That would cost only about $36 billion per year, meaning we could also afford to make a sustained commitment to invest in our physical infrastructure – roads, bridges, school buildings, levees, dams, and water systems – and bring them up to 21st century standards. The American Society of Civil Engineers estimates that making these investments would cost $125 billion a year. The Center for Effective Government estimates that these infrastructure investments would create 2.5 million new jobs. With the remaining funds, we could repair the social safety net and restore funding to vital programs like Head Start, the Supplemental Nutrition Assistance Program, Housing Choice vouchers, and many other programs.

A menu of possibilities. We can raise this additional investment capital from corporations by closing loopholes and reducing deductions and special interest tax credits. Here are a few of the ideas that will be discussed in greater detail below.

  • End deferral of taxes on offshore corporate profits – raises $59 billion a year.

  • Adopt a Wall Street Sales Tax on financial transactions – raises $174 - 354 billion a year.

  • Tax Wealth Like Work by eliminating tax discounts on investment income – would raise $161 billion a year.

  • Eliminate Loopholes that reward corporations for excessive CEO compensation – would raise at least $10 billion per year.

  • Cut state tax loopholes and credits that have reduced corporate payments to states to less than half the posted tax rate – could raise up to $15 billion per year.

Corporations should pay for the public structures that support the national economy and allow their own businesses to prosper. Without a legal and political structure so supportive of commerce and industry, or a national infrastructure for energy development, research, transportation, and communications, or an educated workforce, America would not have the largest economy in the world. That economy allowed American corporations to prosper and our middle class to grow. Businesses that have done well in America should do right by America. It’s time for all corporations to step up and contribute to the public systems that ensure we have a free and democratic society in which every American can succeed and thrive.

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