The American corporate tax system is badly broken. Some corporations pay more than a third of their profits in federal income taxes, while other equally profitable firms pay nothing at all. On average, corporations pay just 12.6 percent of their profits in federal income taxes, according to a recent study by the U.S. Government Accountability Office.
Corporate and political leaders keep telling us that cutting corporate tax rates will create jobs.
Our examination of the evidence found no relationship between cutting tax rates on corporate profits and job growth.
We examined the job creation track record of 60 large, profitable U.S. corporations (from a list of 280 Fortune 500 companies) with the highest and lowest effective tax rates between 2008 and 2010 and found:
In 2004, when a temporary "tax holiday" on offshore profits was put in place, 58 firms brought $218 billion in profits back to the U.S. under the program, for a savings of $64 billion on their taxes. In the following two years, those 58 firms eliminated 600,000 jobs.
In 2012, U.S. corporations reported earning nearly $1.8 trillion in profits. Had they paid the 35 percent tax rate on those profits, total corporate tax receipts would have been $630 billion (rather than the $242 billion they actually paid), and the deficit would have been reduced by nearly a third.
Today, large U.S. corporations report more than $1 trillion in cash or liquid assets. They have the funds to invest in new jobs, should they choose to do so. We found no evidence that cutting the tax rate on corporate profits induces firms to create new jobs in the United States. However, several legal loopholes and deductions do discourage job creation in the U.S. and should be eliminated. This would raise significant revenue and make the tax code fairer.