Time to put the spotlight on corporate taxes

A battle is slowly brewing in Washington DC over whether to raise corporate taxes to help finance new infrastructure investments.  While higher corporate taxes cannot generate all the funds needed, the coming debate over whether to raise them gives us an opportunity to challenge the still strong popular identification of corporate profitability with the health of the economy and, by extension, worker wellbeing.

According to the media, President Biden’s advisers are hard at work on two major proposals with a combined $3 trillion price tag.  The first aims to modernize the country’s physical infrastructure and is said to include funds for the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and affordable and energy efficient housing as well as rural broadband, improvements to the electric grid, and worker training programs.  The second targets social infrastructure and would provide funds for free community college education, universal prekindergarten, and a national paid leave program. 

To pay for these proposals, Biden has been talking up the need to raise corporate taxes, at least to offset some of the costs of modernizing the country’s physical infrastructure.  Not surprisingly, Republican leaders in Congress have voiced their opposition to corporate tax increases.  And corporate leaders have drawn their own line in the sand.  As the New York Times reports:

Business groups have warned that corporate tax increases would scuttle their support for an infrastructure plan. “That’s the kind of thing that can just wreck the competitiveness in a country,” Aric Newhouse, the senior vice president for policy and government relations at the National Association of Manufacturers, said last month [February 2021].

Regardless of whether Biden decides to pursue his broad policy agenda, this appears to be a favorable moment for activists to take advantage of media coverage surrounding the proposals and their funding to contest these kinds of corporate claims and demonstrate the anti-working-class consequences of corporate profit-maximizing behavior.  

What do corporations have to complain about?

To hear corporate leaders talk, one would think that they have been subjected to decades of tax increases.  In fact, quite the opposite is true.  The figure below shows the movement in the top corporate tax rate.  As we can see, it peaked in the early 1950s and has been falling ever since, with a big drop in 1986, and another in 2017, thanks to Congressionally approved tax changes.

One consequence of this corporate friendly tax policy is, as the following figure shows, a steady decline in federal corporate tax payments as a share of GDP.  These payments fell from 5.6 percent of GDP in 1953 to 1.5 percent in 1982, and a still lower 1.0 percent in 2020.  By contrast there has been very little change in individual income tax payments as a share of GDP; they were 7.7 percent of GDP in 2020.

Congressional tax policy has certainly been good for the corporate bottom line.  As the next figure illustrates, both pre-tax and after-tax corporate profits have risen as a share of GDP since the early 1980s.  But the rise in after-tax profits has been the most dramatic, soaring from 5.2 percent of GDP in 1980 to 9.1 percent in 2019, before dipping slightly to 8.8 percent in 2020.   To put recent after-tax profit gains in perspective, the 2020 after-tax profit share is greater than the profit share in every year from 1930 to 2005.

What do corporations do with their profits?

Corporations claim that higher taxes would hurt U.S. competitiveness, implying that they need their profits to invest and keep the economy strong.  Yet, despite ever higher after-tax rates of profit, private investment in plant and equipment has been on the decline.

As the figure below shows, gross private domestic nonresidential fixed investment as a share of GDP has been trending down since the early 1980s.  It fell from 14.8 percent in 1981 to 13.4 percent in 2020.

Rather than investing in new plant and equipment, corporations have been using their profits to fund an aggressive program of stock repurchases and dividend payouts.  The figure below highlights the rise in corporate stock buybacks, which have helped drive up stock prices, enriching CEOs and other top wealth holders. In fact, between 2008 and 2017, companies spent some 53 percent of their profits on stock buybacks and another 30 percent on dividend payments.

It should therefore come as no surprise that CEO compensation is also exploding, with CEO-to-worker compensation growing from 21-to-1 in 1965, to 61-to-1 in 1989, 293-to-1 in 2018, and 320-to-1 in 2019.  As we see in the next figure, the growth in CEO compensation has actually been outpacing the rise in the S&P 500.

In sum, the system is not broken.  It continues to work as it is supposed to work, generating large profits for leading corporations that then find ways to generously reward their top managers and stockholders.  Unfortunately, investing in plant and equipment, creating decent jobs, or supporting public investment are all low on the corporate profit-maximizing agenda.  

Thus, if we are going to rebuild and revitalize our economy in ways that meaningfully serve the public interest, working people will have to actively promote policies that will enable them to gain control over the wealth their labor produces.  One example: new labor laws that strengthen the ability of workers to unionize and engage in collective and solidaristic actions.  Another is the expansion of publicly funded and provided social programs, including for health care, housing, education, energy, and transportation. 

And then there are corporate taxes.  Raising them is one of the easiest ways we have to claw back funds from the private sector to help finance some of the investment we need.  Perhaps more importantly, the fight over corporate tax increases provides us with an important opportunity to make the case that the public interest is not well served by reliance on corporate profitability.

Black Lives Matter protests are saving lives

The research is pretty clear that oppressive economic and social conditions are bad for one’s mental and physical health.   And there is also research showing that protesting is good for one’s mental and physical health.  As Dr. Bandy X. Lee, a psychiatrist at Yale University explains:  

Can protesting and other forms of activism help people break out of those negative thought cycles? Yes, because protesting alone is therapeutic. It is acting on hope and it is also, in the case of oppression, therapeutic.

Now we have a study that finds that protesting actually saves lives.  More specifically, that Black Lives Matter Protests reduce police killings.  As Travis Campbell, the author of the study, concludes, “census places with Black Lives Matter protests experience a 15 percent to 20 percent decrease in police homicides over [the period 2014-2019], around 300 fewer deaths. The gap in lethal use-of-force between places with and without protests widens over these subsequent years and is most prominent when protests are large or frequent.” 

Black Lives Matter movement and protests

Campbell dates the rise of the Black Lives Matter movement to the outrage triggered by the acquittal of George Zimmerman for the 2013 killing of Trayvon Martin.  Alicia Garza, an Oakland, California-based activist, posted a Facebook message saying “black people. I love you. I love us. Our lives matter.” Patrisse Cullors, another Oakland activist, began sharing the message along with the twitter tag #blacklivesmatters.  And, “with the help of activist Opal Tometi, Black Lives Matter (BLM) was born.” 

Campbell dates the start of the Black Lives Matter protest movement to the explosion of protests in response to the 2014 police killings of Eric Garner in New York City and Michael Brown in Ferguson, Missouri. The protests continued, as did the police killings, among the most well-known victims being Tamir Rice, Walter Scott, Sandra Bland, Alton Sterling, Freddie Gray, Laquan McDonald, Philando Castile, Stephon Clark, Breonna Taylor, and George Floyd.

The study—killings and protests

Campbell sought to determine whether these BLM protests, motivated by police killings, actually helped to reduce them.  An important question but one not easy to answer.  His first challenge was to determine the actual number of police killings. 

Unfortunately, there is no reliable federal database of police killings.  There are, however, a number of nonprofit and media organizations that do maintain a public record.  The most important are KilledByPolice.net, The Homicide Record by the Los Angeles Times, Mapping Police Violence (MPV), the Washington Post, the Counted by the Guardian, and Fatal Encounters Dot Org (FE). 

Campbell uses the Fatal Encounters Dot Org database–which relies on the work of paid researchers, public records requests, and crowdsourcing for its information–for his study.  Its dataset is updated regularly and begins in 2000.  According to Campbell, the MPV database has the most complete information on victims, including their race and the circumstances surrounding their death, because it also makes use of social media sites, criminal records databases, and police reports.  However, Campbell doesn’t use it.  Its records only date back to 2013, which makes it impossible to determine pre-protest trends in police homicides in locations with BLM protests.  

As for what constitutes a police homicide, FE uses a broad definition: all lethal interactions with police, whether on- or off-duty, including suicides.  The MPV database only includes cases where “a person dies as a result of being shot, beaten, restrained, intentionally hit by a police vehicle, pepper-sprayed, tasered, or otherwise harmed by police officer whether on-duty or off-duty.”  Campbell uses a more restrictive measure for his study, one that only includes police homicides due to asphyxiation, bludgeoning, a gunshot, pepper spray, or a taser that are not suicides. 

As we can see from Figures 1 (c) and (d) below, which correspond to Campbell’s more restrictive measure, both FE and MPV include roughly the same number of total deaths with a correspondingly high share caused by gunshot. This similarity encourages confidence in the reliability of the FE database.

The second challenge is to determine the number of BLM protests.  Campbell draws his data from a 2018 published study that covers protests over the years 2014-2015 and a public data base maintained by Alisa Robinson for the following years.  To maintain a focus on street demonstrations Campbell does not include in his data “online demonstrations, protests by professional athletes, protests against presidential candidates, or protests against conservative talks at universities.”

The following figure shows the location of the killings and protests used in the study.

The methodology

Campbell’s study includes every census place with a population of at least 20,000 people.  Using a stacked difference-in-difference design, he tested whether Black Lives Matter protests had an effect on police killings in the locations where protests occurred.  In broad brush, the design uses the locations where no Black Lives Matter protests occurred to develop a baseline trend, adjusted for relevant economic and social determinants (highlighted below), of police killings.  Then, the adjusted baseline is applied to locations where Black Lives Matter protests have occurred to determine whether the protests had an independent effect on the number of police killings.

In recognition of the great differences between census areas, the adjusted baseline trend is calculated taking a number of different variables into account.  These include: poverty rates, labor force participation rates, unemployment rates, full-time employment rates, black poverty rates; and educational attainment measures; rates and types of crime; and the number, renumeration, and training of police officers as well as officer demographics, unionization, use-of-force reporting, use of cameras, and community policing initiatives.

The results

The results are striking.  As Campbell explains:

Following BLM protests, lethal use-of-force fell by 16.8 percent on average.  If the model is correct, then BLM protests are responsible for approximately 300 fewer people being killed by the police from 2014 through 2019.  The payoff for protesting is substantial; every 5 of the 1,654 protests in the sample correspond with approximately one less person killed by the police over the following years. The police killed one less person for every four thousand participants.

When Campbell normalized the homicides by population and gave added weight to larger census areas under the assumption that news reports of police killings and protests were likely more accurate there, the decline in police homicides grew to 19.8 percent.

Campbell tested his conclusion by looking separately at the cities with the greatest number of protests.  The figure below shows census places with the most protests in descending order, many of which were home to high profile police killings.  As we can see, almost all experienced a statistically significant decline in police killings following protests.  The exceptions were St. Louis, Minneapolis, San Francisco, and Portland.

As to possible explanations for the decline in police killings, Campbell found that the demonstrations appeared to force changes in local policing.  For example, they increased police use of body-worn cameras, the number of police officers assigned to regular geographic patrols, and the adoption of a variety of community policing initiatives.

A Scientific American review of the study quotes Aldon Morris, the Leon Forrest Professor of Sociology and African American Studies at Northwestern University and president of the American Sociological Association:  

The question becomes, ‘Are Black Lives Matter protests having any real effect in terms of generating change?’ The data show very clearly that where you had Black Lives Matter protests, killing of people by the police decreased. It’s inescapable from this study that protest matters—that it can generate change.

Hopefully that recognition—that BLM protests are saving lives—will encourage ever greater support for, and participation, in the movement, thereby helping to achieve the transformational changes in policing needed to protect the rights of communities of color to live safely and well.