Tax Analysts Blog

GOP Politicians Want to Give Corporations a Tax Cut – But Most Other People Don’t

Posted on Oct 11, 2017

Corporate tax cuts are in the air. Pretty much every elected Republican is determined to slash the tax rate on corporate income, and even some Democratic politicians like the idea.

But you know who doesn’t? Almost everyone else.

There’s a lot of loose talk in Washington about the “consensus” supporting corporate tax reform. “Even in an era of bitter partisanship,” observed Walter Frick recently in the Harvard Business Review, “there’s consensus that the U.S. corporate tax code has a lot of problems.” Chief among its widely acknowledged pathologies: a 35 percent rate that puts it at or near the top in global rankings.

The consensus for corporate rate reduction may be real – but only if we confine our polling to the two ends of Pennsylvania Avenue.

If we venture further afield, we find a different sort of consensus. Americans are definitely unhappy with the state of the corporate tax system. But rather than cutting rates, they want to raise them.

Higher Rates

In a recent survey by the Pew Research Center, 24 percent of Americans said tax rates on corporations should come down. But more than twice as many, 52 percent, said rates should actually go up. Another 21 percent wanted to leave rates where they are.

Raising corporate tax rates is more popular with Democrats than Republicans (big surprise). Among Republicans and “Republican leaners,” 41 percent wanted lower corporate tax rates while 32 percent wanted higher ones. Among Democrats, 69 percent wanted to raise corporate rates while 11 percent wanted to lower them.

The Pew survey should be sobering news for Republicans, especially since it’s broadly consistent with similar surveys over the past year.

Shortly after President Trump released his first tax plan in April, Quinnipiac found that 39 percent thought reducing the corporate rate to 15 percent was a “good idea,” while 55 percent thought it was a “bad idea.” Not exactly a ringing endorsement.

And it gets worse. An April Gallup poll found that 67 percent believed corporations were paying “too little.” A similar question in the same month from the Pew Research Center found that 62 percent were bothered “a lot” by the feeling that corporations were avoiding “their fair share” of the nation’s overall tax burden. Another 18 percent were bothered “some.”

So 80 percent of Americans are concerned about corporations and the taxes they don’t pay. Not exactly fertile ground for selling a business tax cut.

Still, some polls offer a glimmer of hope to fans of a business tax cut.

When rate reductions are framed in terms of job creation, support tends to rise significantly. A Quinnipiac poll in July found an almost even split between those who thought a business cut would deliver real benefits (48 percent) and those who didn’t (47 percent) — better, if not exactly great, numbers for fans of slashing the corporate rate.

When cast in terms closer to home, support tends to rise even more. In April, a Kaiser/Washington Post poll asked rural voters whether lowering business taxes was important to “the job situation in your local area”; 46 percent said “very important” and 32 percent “somewhat important.”

Perhaps most promising, support for cutting taxes on small businesses tends to outpace support for cutting corporate rates (perhaps because small businesses tend to be “in your local area,” at least notionally). In September, a Politico/Morning Consult poll found that 66 percent of respondents supported a special 15 percent rate for small businesses, compared with 34 percent who endorsed a reduction in corporate rates.

It seems plausible, if not exactly likely, that legislators may be able to leverage sympathy for small business to help advance broader business tax reform that includes those unpopular corporations.

History Agrees

Generally speaking, recent polls are consistent with similar surveys from the past 70 years or so. In general, Americans have been longtime fans of taxing corporations and reluctant supporters of corporate tax cuts. But they have also been (modestly) more supportive of business tax cuts when they’ve been framed in terms of job creation.

The popularity of corporate taxes is easy to understand and amply borne out by the poll data. In 1954 economist Gerhard Colm captured the political dynamic succinctly. The corporate tax is “almost ideal” from a political perspective, he said. “There is no other tax which brings in so much money while making so few voters mad.”

Still, voters have also been open to the idea of using business tax cuts as a form of economic stimulus. We tend to remember the 1930s as a period of unrelenting popular hostility toward big business. And yet, an April 1938 poll by Gallup found that 71 percent endorsed business tax cuts when used to encourage prosperity (while just 29 percent supported higher government spending for relief and public works).

In later decades, Americans tended to support — occasionally and somewhat tepidly — various proposals for corporate tax relief. As I wrote in a 2012 article for the Kansas Journal of Law & Public Policy that surveyed poll data on corporate taxes, “support for business tax cuts as a form of economic stimulus remained reasonably popular throughout the postwar era.”

But support was never especially deep, and it tended to fade when juxtaposed with arguments about corporate tax avoidance.

In September 1974, 64 percent “fully” or “partially” agreed that lawmakers should establish “special tax incentives to business to help build up the economy” while only 28 percent disagreed. However, the public seemed to distinguish between “incentives” and “breaks” or “loopholes”; question wording appears to have played a key role in shaping poll results. In November 1970, just 18 percent supported proposals to give business a “better tax break,” while 57 percent opposed the idea. In August 1976, a CBS News/New York Times poll offered a choice: would respondents prefer tax cuts for investors and large corporations to encourage growth, or would they rather see a crackdown on “tax loopholes” used by these groups? Fully 71 percent supported the crackdown, and just 15 percent the growth.

Other poll results from the postwar decades are broadly similar (although we should be careful not to exaggerate the depth of polling on corporate taxation; personal income taxes get a lot more play from pollsters). Taken as a whole, these old polls, combined with current surveys about small business, offer some glimmer of hope for the tax reform champions of 2017

But the glimmer is faint. The real message from 70 years of poll data is not exactly encouraging. Americans, it turns out, are not especially sympathetic when it comes to the plight of the overtaxed corporation. In fact, they are generally inclined to soak ‘em.

 

Read Comments (7)

Travis RechOct 11, 2017

Most Americans can't articulate it like an economist, but they know from experience that any corporate tax savings would be passed directly onto the big shareholders and not used for new hires, infrastructure, or expanded R&D. Corporations are earning record profits already today and the excess cash is being used for stock buy-backs to increase shareholder value and not to benefit the "prosperity" that rural people might be thinking of when answering that poll. Unless you consider the Waltons' prosperity to be your own, ofcourse.

That said, the corporate tax code is a mess and desperately in need of reform. But there are many kinds of reform and I'm not sure the kind we need is the one that transfers the burden of taxation further from corporations to individuals as its primary goal and consideration.

Mike55Oct 11, 2017

I've never understood this line of argument against corporate tax cuts. If the desired policy objective is to tax "big shareholders" like the Walton's, then why not just tax them directly? Not only is doing so possible, it's actually a whole lot easier and more efficient.

I appreciate that progressives think Republicans exaggerate the impact of the corporate tax on non-executive employees and consumers: Republicans think about 80% of the corporate tax burden lands on such groups, while progressives think it's actually closer to 20%. But to me 20% is still an unacceptably large amount of collateral damage... so what am I missing?

Travis RechOct 12, 2017

The reason why you don't tax them directly is because you want a broad base. If you only tax one output and ignore the rest, economic activity will warp around that and the one thing youre taxing will evaporate. Obviously the goal isn't strictly to "tax the rich" nor is that what the topic is.

The republican furor to lower corporate tax rates is about serving their political donor class, and thats pretty obvious. Its very hard to make a case that lowering corporate tax rates would have a substantial effect on growth or "prosperity" or whatever they try to frame it as this time. This is simply about increasing after tax profits, money which is most likely going to be used in stock buy backs.

I appreciate your willingness to give Republicans the benefit of the doubt that they are dealing fairly and they have considered the economic implications of various proposals and settled on the current reform agenda as the most beneficial, but I don't give any party that benefit personally. I am perhaps too cynical but its patently obvious by who benefits from the current round of tax reform being pushed by the Republicans and not surprisingly its the interests that contribute most to their coffers.

As I said, I'm not against corporate tax reform. But by that I mean genuine reform designed to facilitate a more efficient tax system and maximize government revenues with the least economic impact. I don't think this qualifies as that, or anything like it.

Mike55Oct 11, 2017

I think you are overemphasizing the value/importance of those poll results. Two critical take-aways from the corporate tax opinion polling exercises I have seen: (1) the average person knows virtually nothing about how corporate tax works, and (2) the average person's opinion about corporate tax policy is very malleable relative to other political issues.

This means it doesn't matter what the corporate tax rates actually are, only how they are messaged. If under 10% of those Pew/Gallup survey respondents know what the corporate tax rate is in the first place, then you can safely lower the rate without angering them (so long as your rhetoric is better than the opposing side's). And that's exactly what Republicans plan to do.

Joe ThorndikeOct 12, 2017

To be sure, I bring a healthy dose of skepticism to issue polls; to offer still another example, I think all those polls on various ACA repeal alternatives were borderline ridiculous. Or maybe I should say, ridiculous if you try to use them as a guide to specific policy shifts.

But the broader the issue, the more valuable the polling probably is. On corporate tax rates, I'm not sure the issue is oppressively complicated, at least when painted in broad strokes.

Sure, opinion will be malleable, especially in the hands of skillful politicians. But the starting point for public opinion is still important. If the public is inherently suspicious of the thing you are trying to legislate, you'll have a harder time shifting opinions (and getting your legislative victory).

Mike55Oct 16, 2017

"On corporate tax rates, I'm not sure the issue is oppressively complicated, at least when painted in broad strokes."

This is where our opinions differ. The overwhelming majority of folks in the polls you cited could not identify the corporate rate they were opining should be higher/lower. This makes the public opinion starting point a matter of limited utility.

I don't think the problem is just complexity, but also the lack of opportunity to experience the underlying policy issue first hand. Health policy is far more complicated than the corporate tax, but the typical voter is forced to actually interact with the healthcare system, placing a natural limit on the ability of politicians, influencers and pundits to change minds. Sure a skilled politician can do so anyway, but it's a whole lot harder.

I think corporate tax is more like trade policy: everyone has strong opinions in polls, but those opinions shift constantly even within the parties. So skilled politicians worry more about the appeal of their message than how appealing polls show it to be during any particular snap-shot in time.

Edmund DantesOct 13, 2017

I'd like to see this poll question sometime:

"To share our wealth with foreign countries, Congress will enact a law to impose a second corporate tax on profits earned overseas by American companies, after those profits have been taxed in the country where the profit was earned. The result of this second tax is expected to be that American companies will invest all of their overseas profits in foreign countries, thereby boosting those foreign economies, instead of bringing those profits home for American workers and investors. Do you support this policy?"

I would be shocked if even 5% of respondents would support this policy. Because once clearly understood, our current corporate tax policy is foolish.

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