How huge tax cuts for big corporations led us to recession

According to a report filed by Citizens of Justice, big cuts in corporate tax and tax loopholes, resulted in a $90 billion annual loss for the U.S. Treasury that led to the recession in 2008.

Providing large tax subsidies to big companies and businesses is a bad economic policy. This artificially boosted the rate of returns for tax favored industries and companies and reduced the rate of returns for less favored industries and companies. Reduction of federal corporate income tax reduced state corporate income taxes too. This is because state corporate tax usually takes federal taxable income as their reference point to calculate taxable corporate profits. This means when the federal government permits corporations to move their profits overseas or protect earnings from say oil drilling, then most states automatically follow the same path.

Big corporations set up their international units in order to build raw materials in offshore places having low tax rates. Then these same companies purchased these materials from their offshore units at a higher rate. Thus, the foreign subsidiaries made more profit than their parent company in the U.S. When companies brought this money into the country, they paid the difference of what they paid in the country where their offshore unit was set up and the corporate tax rate. Many of these companies took advantage of tax reduction program which helped them further to bring cash into America without having to pay tax.

Majority of the bigĀ  corporations outsourced jobs outside America in order to make more profit. Employment in foreign countries rose from 729,000 jobs to 11.9 million between 2006 and 2008. During the same period, employment in these companies was reduced from 500,000 jobs to 21.1 million.

The general public had to bear the burden due to corporate tax cuts. The public ended up paying more and receiving less in public services or faced national debt burden. The corporate tax cuts resulted in significant cuts of programs like need for education, etc. Most corporations in order to reduce further tax also ended up sharing earnings with shareholders who then paid the taxes. Corporations raised stock prices, which were not taxable as long as shareholders kept the stock and were levied at low profit tax rates when sold.

Thus, tax cuts for big corporations helped to move the country towards recession.

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