For decades, we’ve been told by the Republican Party that cutting corporate taxes will stimulate investments and create jobs. Now President Trump is pursuing tax reform, starting with a huge corporate tax rate reduction. This is exactly what Canada did and it comes with a warning.
From 1988 to 2012, Canada reduced their corporate tax rate from 36 percent to 15 percent. So did this massive tax reduction spur higher levels of investment with rapid growth and job creation? The short answer is no.
By hoarding cash, Canadian firms stabilized dividend payments and reduced risks. They acquired more companies and hedged against market downturns. Their newfound cash was not used to expand new products, build new factories, and create more employment. Corporate tax reductions became one of the greatest Canadian public policy blunders.
While Republicans continue to delude themselves that trickle-down tax policies work, corporate America is currently hoarding almost $2 trillion in cash. Trump’s tax cut plan will be as big a flop as his failed health care reforms. It would add trillions to the U.S. budget deficit while funneling most of the benefits to corporate America’s already large stockpile of cash. Balancing the budget while enacting huge corporate tax cuts would also jeopardize spending for Social Security, Medicare, education, child nutrition, and highways.
