A Common Misunderstanding About Taxes, Inflation and Donald Trump

I am no fan of Donald Trump. That is putting it mildly.

He is a proven psychopath and is closer to Hitler than any former American President. It will be a sad day, indeed, should America not have learned from history and re-elect this vicious dictator wannabe.

That said, he did one good — make that, partially good– thing. He cut taxes on corporations, which improved Gross Domestic Product growth and added to corporate profitability.

Sadly, his cuts favored the rich, widening the Gap between them and the rest of us.

Well-meaning people do not understand why economic growth benefits the nation. They seem to consider business to be the enemy of the economy rather than the engine that makes it run.

The enemy is the ever-widening income/wealth/power Gap between the rich and the rest of us.

Lindsay Owens

Here are excerpts from an article you should file in the “Save us from our friends” category:

TRUMP’S CORPORATE TAX CUTS PAVED THE WAY FOR INFLATION
The former president made it more profitable for companies to gouge us. When those cuts expire next year, we’ll have an opportunity to get our money back.
By Lindsay Owens | May 15, 2024

Remember those words, “get our money back,” because they demonstrate profound ignorance about how our economy operates.

Next year, when key provisions of President Trump’s 2017 tax breaks to the wealthy and corporations expire, we have an opportunity to get our money back.

I’m not just talking about all the foregone tax revenue we’ve lost because the rich have paid so little since 2017 — though we should get that back, too.

Mr. Owens seems to believe that we Americans receive federal tax revenue and that federal tax cuts take that revenue from us.

Nothing could be further from the truth.

Contrary to popular, innocent belief, paying federal taxes does absolutely nothing for the Monetarily Sovereign federal government. Unlike monetarily non-sovereign state and local governments, the federal government creates new dollars to pay all its bills.

Every dollar you pay in federal taxes is destroyed upon receipt and lost to the economy.

Why does the federal government collect taxes? Not to pay its bills. There are only two purposes for federal tax collection;

1. To control the economy by taxing what the government wishes to discourage and by giving tax breaks to whom the government wishes to reward.
2. To assure demand for the U.S. dollar by requiring that taxes be paid in dollars.

This is in contrast to the monetarily non-sovereign state, county, and city governments, which do use tax dollars to pay their bills.

Mr. Owens does not seem to understand the differences between Monetarily Sovereign entities and those that are monetarily non-sovereign.

I’m talking about the money families have lost to corporate price gouging. Let me explain.

In 2017, Republicans slashed the corporate tax rate from 35 percent to 21 percent, giving massive corporations their biggest tax windfall since Ronald Reagan was president.

Translation: In 2017, Republicans slashed the corporate tax rate from 35 percent to 21 percent, giving the private sector (aka the economy) an infusion of growth dollars. 

The result: Unemployment fell, and GDP rose.

After Trump’s tax cuts, unemployment (blue) fell, and Gross Domestic Product (green) rose.

A few years later, as Americans emerged from a global pandemic, these same corporations drove up prices for families.

The price increases (aka inflation) following the global pandemic were not related to the reduced corporate tax rate. They were caused by shortages of oil, food, computer chips, steel, wood, shipping, labor, and other scarcities.

While inflation hamstrung workers and families, it didn’t make a dent in corporate profits. In fact, as many CEOs boasted themselves, it’s been a boon.

Companies simply passed rising costs along to consumers — and then some, bringing in record profits as a result.

Again, the tax cuts had nothing to do with corporate greed. The companies raise prices to whatever the buyers will bear.

All told, corporate profit margins skyrocketed to 70 year-highs. And by the end of 2023, when Americans were beyond fed up, after-tax corporate profits hit an all-time record high of $2.8 trillion.

Dollars circulate. Profits circulate. The primary problem is that the income/wealth/power Gap between the rich and the rest, widened.

This could have, and should have, been controlled by the federal government via increased benefits to the middle- and lower-income groups.

To narrow the Gap, Medicare and Social Security benefits should be increased. College tuition should be free. Poverty should erased. Housing should be subsidized. Renewable energy should be subsidized.

The federal government has the power to control inflation and to narrow the Gap. Smart economists don’t blame corporations for making “too much” money.

My organization, Groundwork Collaborative, recently found that corporate profits drove over 50 percent of inflation in the second and third quarters of last year.

Utter nonsense. Inflation was driven, as it always is, by shortages of key goods and services, not by corporate profits.

But why would a change in the corporate tax rate unleash the kind of rampant corporate profiteering we saw in the aftermath of the pandemic?

Simple: It’s a lot more fun to gouge customers when you get to keep more of what you pull in.

“A lot more fun?” A childish non sequitur .

Low tax rates don’t encourage “gouging” customers. If a company wished to “gouge” customers, it will do so, regardless of tax rates.

Look at Procter & Gamble, which has raised the price of everything from toothpaste to diapers. Last year, the company pulled in more than $39 billion in profit.

If they had to pay the 35 percent statutory tax rate, they would have sent nearly $14 billion to Uncle Sam. Instead, they paid a 21 percent rate and, using loopholes, got to keep an extra $10 billion — which helped with their combined $16.4 billion worth of dividends and stock buybacks for shareholders.

All dollars sent to the federal government are destroyed upon receipt. If Proctor and Gamble sent $24 billion to Uncle Sam, that would have removed $24 billion from the economy, benefiting no one.

Corporations did well from Trump’s corporate tax cuts, with executives getting big raises and shareholders receiving big buybacks.

But the real bonus came when inflation hit. Corporations used the cover of supply chain issues and broader inflation to hike prices more than their higher input costs justified — and they didn’t have to worry about their tax bill.

Whether tax rates are high or low, corporations “worry about their tax bill.” They always try to minimize taxes.

Corporations paying federal taxes serve no public purpose. The dollars come out of the economy.

The only negative in the entire scenario is that the money flows to the rich more than to the middle—and lower-income people and businesses. The income/wealth/power Gap is the issue.

Our tax code is exacerbating some of the worst corporate excesses, effectively “subsidizing corporate price gouging,” as Sen. Elizabeth Warren (D-MA) described it recently.

But it’s not only that low tax rates incentivize companies to overcharge.

Rock-bottom tax rates also make collusion more profitable, as we saw with Pioneer Oil.

There is no mechanism by which low tax rates increase pricing. A much stronger case could be made for high tax rates increasing costs that lead to price increases.

Recently, the Federal Trade Commission barred former Pioneer Oil CEO Scott Sheffield from joining the board of ExxonMobil following their merger, because Sheffield allegedly colluded with OPEC to raise oil prices.

As families struggled with higher energy costs, the oil and gas industry banded together to keep prices high, which according to one analyst accounted for 27 percent of inflation in 2021.

Reduced taxes did not cause Sheffield to collude with OPEC to raise oil prices.

But yes, oil shortages and oil pricing were the primary causes of inflation.

Oil prices (red), which are determined by oil supplies and shortages, parallel inflation (blue).

When the reward is higher with lower corporate taxes, executives like Sheffield are more willing to take the risk.

Higher corporate taxes are both crucial for accountability and for ensuring that there’s far less incentive for executives to squeeze as much as they can from their customers.

Utter nonsense. One just as easily could make the case that high taxes, which raise costs and squeeze profits, incentivize businesses to raise prices.

Wall Street tycoons and CEOs didn’t take the heat of inflation — they fanned its flames and families got burned. It’s no wonder people overwhelmingly favor a tax code that’s no longer rigged for corporations, especially as they struggle with high prices.

That much is true. The tax code is rigged for the rich.

The federal government should use tax law and its unlimited spending ability to narrow the Gap.

Congress raising the corporate tax rate in 2025 is an opportunity to recoup some of the truly obscene profits corporate America raked in during this period of economic upheaval for American families.

It’s time Americans got their money back.

American families would not see one penny of increased taxes taken from corporations. Not one penny. Those dollars are destroyed upon receipt.

Lindsay Owens is the executive director of Groundwork Collaborative. This op-ed was distributed by OtherWords.org.  Lindsay Alexandra Owens is an American economic sociologist and academic who serves as the executive director of the Groundwork Collaborative, a Washington, D.C.-based non-profit public policy think tank. Owens is best known for her academic research of economic recessions in the United States and outspoken public commentary on the role that corporate profiteering plays in inflation

Rodger Malcolm Mitchell
Monetary Sovereignty

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