CORPORATE TAX CUTS: UNINTENDED CONSEQUENCES

There are some dirty little secrets about corporate tax cuts in unintended consequences.  I'm actually for a corporate tax cut from 36% to 26% and see what happens though many conclude it shouldn't be done.*  Will it pay for itself?  Will employment increase?  Will wages increase?  If all the socialism support of companies remains in place, the average company tax would drop from 27% now to  around 17%.

What are the unintended consequences and there are many.  For examples:
(1) What will other countries do?  It is quite possible that other countries will adjust their corporate tax rates too to maintain the U.S. has the highest rate.  My guess is that the bigger we cut the corporate tax rate, the more likely it is that other countries will do the same.  It could be a tax cut war.

(2) Will employment increase?  Actually this is pretty iffy.  In the 2004 tax holiday for companies to repatriate their foreign earnings at a tax rate of 5.25% , employment in the seven largest repatriates actually fell!*

From 2005 to 2006, Pfizer, which repatriated $37 billion, slashed 10,000 jobs. Merck, which brought back $15.9 billion, cut 7,000 jobs, and HP pared its employment rolls by 14,500 after repatriating $14.5 billion.*

Most of the money went to repairing balance sheets and rewarding shareholders, according to the CRS. According to one study cited, as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was expressly prohibited by Congress.  (Empasis added).*

Prohibited uses for the cash weren't easy to track because the money ended up being commingled with other corporate funds.*

(3) Will the increase in profits from a corporate tax cut be used productively to build new plant or acquire new equipment and hire workers at increased wages?  This was not the case in the 2004 repatriation tax cut. Most of the money went to repairing balance sheets and rewarding shareholders, according to the CRS. According to one study cited, as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was expressly prohibited by Congress.*  (Empasis added)..

So don't be surprised if any increase in profits doesn't go to hiring new workers, increasing wages, or to building new plant and acquire new equipment.  As I said just a couple of months ago: "Though I am for a "Tax Holiday" to repatriate foreign corporate profits with a tax, of say, 5%,  I would demand that the companies doing so be legally bound not to buy back stock for 5 yrs.  What would be the penalty if they do buy back stock?  Perhaps a tax of 50% of the dollar amount of the buyback.  Stock buybacks are wasted money and are done because companies don't know what to do with the money.  Companies are awash in money and really don't need the repatriation.  I doubt much of the money will go towards new plant and equipment or a bonus to the employees.  They could buy back debt and/or issue a special dividend, some of which may find it way into productive enterprises.  If something like this isn't done, then we would no doubt see something liked happened to the "Tax Holiday: of 2004.""**

Don't be fooled by all the hoopla.

* https://www.cnbc.com/2017/08/31/trumps-tax-repatriation-plan-flopped-the-last-time-it-was-tried.html
** http://stopcontinentaldrift.blogspot.com/2017/09/tax-holiday-for-repatriation-of.html