The conventional wisdom in Washington is that tax breaks for corporations lead to economic growth. Tax assistance for working families, on the other hand, may help them make ends meet, but it doesn’t have much impact on the economy.
The conventional wisdom has it backwards. And so did Congress, when it wrestled through a huge tax package that gave corporations plenty to celebrate as lawmakers finished their work for 2015.
If we’re going to drive our economy forward and provide economic security to Americans, we need to get this right. And so does the next president.
In the year-end deal, Republicans led the charge for extending corporate tax breaks, racking up more than $351 billion worth over 10 years. Democrats, meanwhile, pushed for boosting tax credits for low-wage workers and people with children. In all, those breaks for the rest of us added up to $118 billion — less than half as much as the corporate tax breaks.
This balance fits the pro-corporate prescription for economic growth put out by virtually every Republican presidential candidate.
But according to an economic analysis by Moody’s — an economic research service aimed at the business world — working family tax credits would boost the economy by many times more than corporate tax breaks.
Moody’s reports that allowing businesses to write off investment expenses more quickly leads to 29 cents in economic growth for every one dollar in reduced corporate taxes. More generally, they say, cutting corporate tax rates leads to 32 cents in economic growth for every dollar corporations don’t pay in taxes.
There’s much more bang for our buck in the credits for working families. The biggest of those is the Earned Income Tax Credit, a break for low-wage working people that boosts the economy by $1.23 for every dollar. The tax credit for childcare is even better, with a return of $1.38.
The bottom line is that these $351 billion in corporate tax breaks over ten years will increase economic growth by about $105 billion. But the $118 billion in tax credits for working families will boost the economy by about $149 billion.
In other words, working family tax credits will drive over 40 percent more economic growth at one-third the cost.
The reason? Virtually every dollar returned to working people gets pumped back into the local economy. Families spend the money on basics, like rent, childcare, groceries, getting to work, and doctor’s bills.
Despite what big businesses tell us, reducing corporate taxes has little impact on investment or jobs. Corporations only decide to invest in a new place or hire more people when they believe they can sell more products — not when the taxes they pay on those sales go down. Instead of spending those tax breaks on new hires, corporations are more likely to hike CEO pay and pad their stock price and dividends.
So why is the conventional wisdom so wrong?
Because corporate front groups and lobbyists — some 1,400 of them in Congress — have spent years peddling the tall tale that corporations are job creators who need lower taxes to do what they do best. Like any myth, repeating it over and over again makes it more believable, even when it’s not true.
Clearly, working and middle-class families are the engines of the economy. When people have good jobs that can support their families, that provides more customers for businesses and boosts the economy.
Remember this when the Republican candidate for president tells you that instead of raising the minimum wage or making childcare or college tuition more affordable, we should cut corporate taxes. It’s not just a matter of what’s fair — it’s that fairness is the biggest driver of economic growth.
Richard Kirsch is a senior fellow at the Roosevelt Institute, the author of Fighting for Our Health: The Epic Battle to Make Health Care a Right in the United States, and a senior adviser to USAction. USAction.org