Guest Post: Paul Ryan's Budget Arithmetic Makes No Sense

Submitted by Nomi Prins

Paul Ryan's Budget Arithmetic Makes no Sense

Leaving aside for the moment the petty let's be children and see if we can grind the government to a halt game going on amongst parties and sub-parties, and the fact that both parties blessed every single debt cap increase placed before them in equal measure over the past decade of Bush *2 + Obama * 1/2, I just want to focus on House Budget Chairman, Paul Ryan's, corporate tax decrease proposal for a second - because the math is so bizarre.

Looking at 2010 - the Federal government took in about $2.1 trillion worth of tax revenues, 8.9% of those came from corporate taxes, or about $187 billion. That left individuals footing 41.5% of the bill through individual income tax and another 40% through social security and retirement taxes (get it - we do pay into the system, $840 billion dollars in 2010 to be exact), with the remainder of tax receipts coming from excise and 'other' sources. (The percentage of federal tax revenues that corporations paid in 2009 was 6.6% - the lowest on record.)

The notion that slicing the corporate tax rate from 35% to 25% would spur large corporations to either:

a) fire their accounting staffs and do their returns on Turbo Tax 

b) willfully bring all their relevant earnings onshore

c) engage in major hiring sprees or

d) pay rank-and-file workers proportionately more and CEOs proportionately less  than in the past 

is obviously ludicrous, though not to Ryan or the GOP or apparently, the portion of the Dems that aren't spitting at them with their calculators. 

Besides that, it's not supported by fact. To the contrary, since the 1930s, each year in which corporations paid less than 10% of the overall federal tax receipts, coincided with recession and unemployment spikes. The last time that the overall percentage of corporate tax receipts was greater than that of individual ones was in 1943. In other words, when things are shaky for the overall economy, corporations bear a proportionately lower share of tax revenues than individuals. This is not exclusively, but certainly probably, due to their ability to move stuff around their books and hire scores of CPA's to help.

During the 1920s, Treasury Secretary, Andrew Mellon substantially hacked tax rates for companies and the general public under the premise that a magical 20% tax rate would discourage the rich and the corporate from seeking off-shore tax havens and on-shore loopholes. Though Mellon did manage to balance the budget after World War I, the tax practice led to an over-bloated and over-leveraged financial economy during the 1920s followed by the Great Depression. It didn't make charities out of companies. Even though it was more progressive than what we have today.

Sure, the budget stands a bloated mess. But the revenue side and mechanism is far more broken than the spending side, which itself grew due to the cost of wars, weapons and financial subsidies to the nation's richest people and corporations (especially the Wall Street ones). Lowering the corporate tax rate would merely reduce the share of corporate taxes getting to the federal till even further. 

Companies like GE may operate under a 35% tax rate in theory, but in practice that rate could be 50% or 0% and the result would be the same, not only because of the complexity of the loopholes in the corporate tax code, but also because there is no wherewithal in the government, or the Treasury department to do anything about it. Hell, the Treasury Department assisted GE Capital, GE's financial, er - hedge fund - arm, when it needed a 'crisis' bailout. The FDIC stepped in with a $140 billion guarantee for their debt in 2008 and 2009. Not only didn't GE pay any taxes during those years, but for 2010, the company managed to manufacture its largest tax refund - $4.1 billion.

How is lowering the corporate tax rate going to change that exactly? Uh, it's not. What it would do, is create a wider budget gap and send more politicians scratching their heads over why. So, it's really just a super-bad and dumb idea.