Giving tax cuts to the companies that deserve them

Giving tax cuts to the companies that deserve them
© Greg Nash

A recent White House press release boasted that as many as one million Americans have gotten what it called ‘Trump Bonuses” and “Trump Pay Raises” from their employers the purported result of lower corporate tax rates in the tax cut legislation rushed through Congress in December. 

In reality, however, shareholders, not U.S. workers, are likely to be the Trump tax cuts’ biggest beneficiaries. In earnings calls last fall, reported Bloomberg, most big companies assured investors they would pass along their windfalls in the form of share buybacks and dividends.

Democratic Senate Minority Leader Chuck SchumerCharles (Chuck) Ellis SchumerSchumer wants investigation into Chinese-designed New York subway cars Getting serious about infrastructure Schumer calls on McConnell to hold vote on Equality Act MORE (N.Y.) recently circulated a list of 30 large companies that have announced a total of $83.7 billion in share buybacks in expectation of the new law.

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For decades now, U.S. workers’ interests have lost out to stockholders’ expectations, thanks to the unrelenting pressure of “shareholder primacy.” In pursuit of rosy short-term gains, companies have sacrificed their own long-term well-being —​ forgoing spending on R&D, advertising and maintenance to meet quarterly revenue targets- while shortchanging workers on pay and training. Though wages are finally creeping upward, these increases still cannot compensate for years of stagnation and disinvestment.

 

Unfortunately, mere exhortation will not right the balance between workers and shareholders, so long as companies must compete for investors’ attention in a global market. Nor will overly heavy-handed regulation, which would only invite resistance, evasion, or, worse yet, the flight of U.S. companies to friendlier shores. Rather, policymakers need new mechanisms that put the interests of workers and shareholders in harmony, rather than in conflict.

One such mechanism is to reserve the new lowest corporate tax rate for the companies that “deserve” it — i.e. the ones who do best by their workers in wages, benefits, and training opportunities. In particular, PPI proposes that the firms eligible for the most generous tax relief should meet one of two criteria: (1) that they meet specified standards for investment in their workers, set by Congress; or (2) that they are legally organized as “benefit corporations” — a new type of legal structure intended to encourage so-called “double bottom line” companies — and provide good evidence of their practices. This proposal would not deny any company tax relief; instead, it would offer a fillip to the companies that are doing the most to achieve what President TrumpDonald John TrumpThe Hill's Morning Report - White House, Congress: Urgency of now around budget GOP presses Trump to make a deal on spending Democrats wary of handing Trump a win on infrastructure MORE has argued that corporate tax relief would and should do.

A preferential tax rate for “deserving” companies could accomplish several things. First, providing direct financial rewards to companies doing right by their workers — and in a form that shareholders can appreciate. ​It ​​could help upend the current calculus that worker investment must always take a toll on the bottom line. While some companies have valiantly argued that investments in human capital create long-term value, these arguments fail to move shareholders who aren’t themselves in it for the long haul. The benefit of immediate tax relief could ease that argument while making investments in wages and worker training more palatable in the short-term.

Second, a preferential rate would elevate the companies pushing against the grain of disinvestment and encourage others to do the same. All companies are not created equal. And those that hollow themselves out in pursuit of cheap labor and short-term profit should not be entitled to the same benefits as companies that invest in their workers and, by extension, create broader social value that isn’t appropriately recognized on a balance sheet.

Among the firms especially worth recognizing are the growing numbers of “benefit corporations,” now authorized in 32 states and the District of Columbia, who have legally committed themselves to put social good on par with profits. Many of these companies are also “certified B Corps,” meaning they’ve passed a rigorous standard for corporate good behavior set by the nonprofit B Lab, including decent wages, benefits and training, responsible corporate governance and environmental sustainability. Aside from a few well-known firms, however, such as Cabot Creamery, Patagonia and Warby Parker, the benefit corporation model has yet to hit the corporate mainstream — something a tax benefit could readily change. 

Third, a tiered corporate rate based on merit would start a much-needed conversation about what America’s corporate citizens owe to the nation’s overall economic and social health. While the question of who is “deserving” animates most discussions about the distribution of government benefits, companies almost always get a pass – despite holding the lion’s share of national wealth, boasting an outsized voice in national policy and enjoying many of the rights and privileges enjoyed by their human counterparts, including, as the Supreme Court made abundantly clear in Citizens United, free speech. That should change.

Congress has so far asked too little of the nation’s most powerful citizens, and as it debates the many “fixes” inevitable under the new law, it should consider what companies should offer in exchange for the dramatic level of relief the Trump tax cuts bestowed. The result could be a far better deal for both U.S. workers and the nation.

Anne Kim is director of domestic and social policy at the nonprofit Progressive Policy Institute.