Note: This is the first installment in a series on how corporate tax loopholes undermine the middle class—and what can be done about it. You can read the second article in the series here, and read the third article here.
By Amanda Litvinov and Dwight Holmes
As more middle class Americans than ever before wring their weary hands over whether to pay down their student loans or make their next mortgage payment, corporations are also experiencing a history-making moment. They’re sitting on record profits, and are taxed at historically low rates.
Between 2001 and 2010, corporate profits in America increased by 125%. Meanwhile, the median family income went down by 4.6% in the same time period. How was such growth in corporate profits possible, given the economic meltdown that started in 2007? Here’s the quick and dirty answer: They stacked the deck.
For decades, some of the nation’s most successful companies and CEOs have financed and lobbied enough politicians to curry a shocking level of influence over how laws are written and which ones pass. They’ve molded a system in which they can keep an ever-increasing share of profits for themselves, stunting the paychecks of working Americans and putting more burden on small businesses.
See the sources for the information used in this graph.
On top of that, corporations are contributing less in taxes to the federal government and to the communities where they conduct their business, meaning less money for serving the public good through education and other services. (A recent report shows 30 of the most profitable Fortune 500 companies pay more to their lobbyists than they do in federal taxes.)
“The middle class is being harmed by the structure of the economy, the structure of the tax burden, and the erosion of social services, including education,” said Robert Kuttner, a co-founder of the Economic Policy Institute and distinguished senior fellow at the non-partisan public policy center Demos.
When corporations don’t pay their fair share in taxes, Kuttner said, there are only three alternatives: “You either cut the services, you add to the deficit, or you make someone else pay—in this case, the middle class.”
We’re not talking chump change here. The Institute on Taxation and Economic Policy estimates that in the past three years, the federal tax revenue lost through corporate tax loopholes is $222.7 billion, which represents a loss of as much as $9.8 billion to public schools. State tax revenue from just the 265 largest companies saw losses of $42.7 billion in three years, roughly $15.4 billion of which would likely go to public schools if the loopholes were closed (see source 1 below).
Our economy was once much more balanced. Between 1948 and 1973, as productivity increased, worker wages grew at the same pace—in other words, American workers got a fair share of the growth. Between that and programs like the G.I. Bill and Social Security, America’s thriving middle class and vibrant public education system astonished the world. Then things changed. It’s more accurate to say that things were changed, by small but powerful groups, including ALEC and other right-wing organizations, and business leaders who wanted to see their companies’ already healthy profits grow exponentially.
To be clear: The concentration of power now in the grips of corporate America and the resulting unprecedented economic inequality we see today is no accident. For the past 30 years, we’ve all been trudging down a path that was carefully plotted for us by those who bought political influence for the express purpose of putting business profits above the well-being of America’s middle class.
They promised us tax cuts would lead to more revenues, greater investment and more jobs. Instead we have unprecedented deficits, falling family incomes, and four job-seekers for every open position.
Americans’ optimism about their children’s futures has reached an all-time low for good reason. Working hard and playing by the rules just doesn’t pay off like it used to; in past eras, greater equity in the distribution of income made for an economy that worked better for everyone. Our best hope for restoring balance is to demand change from our elected leaders.
“We need adequate levels of public spending that are not financed by taxes that come out of the pockets of the middle class,” says Kuttner. “And there are two sources to get those revenues: From wealthy people in their role as individual tax payers … and corporate income taxes.”
Raising our collective voice is the only hope we have in countering the other voices lawmakers hear every day—those of corporate lobbyists and influential business execs who are asking for even more tax breaks. Do you think they have your sons’ and daughters’ educations in mind?
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