Former RATE Coalition Co-Chairman Jim Pinkerton spoke to The Daily Signal’s Rob Bluey and Ginny Montalbano about the Tax Cuts and Jobs Act, current economic conditions, and left-wing efforts to repeal the tax cuts. Pinkerton is a former Reagan and Bush White House official. An edited transcript of his interview is below.
Bluey: We’re here to talk about tax cuts, but I want to begin by having you explain what the RATE Coalition did and what role it played in getting the Tax Cuts and Jobs Act passed.
Pinkerton: The RATE Coalition was formed in 2011 as a coalition of Fortune 500 companies, everybody from AT&T to Walmart, dedicated to one proposition, which was getting the United States corporate tax rate down to an internationally competitive level.
When we began in 2011, the U.S. corporate rate was 35 percent, and the OECD average—that is the Organization of Economic Cooperation Development, which is the club of most developed economies—their corporate rate was averaging about 24 percent. Over the next six years until the Tax Cuts and Jobs Act was signed into law in December of 2017, the OECD average actually fell two points, went from 24 to 22, leaving us even higher relative to the international average of our competitors.
And so we were getting a little nervous, we’re saying, “Hey, we’re losing ground here. That was our argument all along.” When President Reagan enacted his Tax Reform Act of 1986, he brought the corporate rate down to 34 percent. President Bill Clinton bumped it up to 35 percent, and that’s where it stayed.
Meanwhile, the other countries, including our big competitors like Japan, China, Germany, Canada, Ireland, were all slashing their corporate rates and leaving the United States at a significant disadvantage.
That’s why the RATE Coalition was formed, and we were delighted to see, finally, after six years of effort, that President Trump, and Speaker Ryan, and Leader McConnell, managed to herd all those cats to get the bill through.
Montalbano: So on that note, how much credit does the Tax Cuts and Jobs Act deserve for the economic growth we’re seeing today?
Pinkerton: The stock market’s up about 6,000 points since President Trump was elected, so that tells you something. Every day I used to try to keep track, and I just gave up after a while, of all the companies that had repatriated earnings, and started new factories, and hired new people. Those who are curious can go to The Heritage Foundation or they can go to [Majority Whip] Steve Scalise, they can go to all sorts of people who keep track of these things.
As to the surge is happening, when you see Apple saying, “We’re going to put $350 billion back into the U.S. economy,” that’s a pretty big number. That’s not, as Nancy Pelosi would say, “Crumbs!”
Bluey: President Trump has complained, just this week in fact, that despite the great economic success stories that you just mentioned, you’re not seeing it on the news. You rarely see this good news. Why is that?
Pinkerton: Yeah, how about that? I’ve been in Washington since the Reagan administration, and I can tell you that when it seemed like the economy was in trouble, that President Reagan had inherited from Jimmy Carter in 1981, the media were eager to blame Reaganomics. And then after the economy started recovering in 1983 or so, they stopped calling it Reaganomics and then shifted over to “What about the homeless?”
Look, it’s fair to say the media is part of the opposition party on this, and they don’t want a Republican tax cut to succeed. Period. And if it does, they don’t want to give it credit, and they’ll talk about everything else but.
It is just the challenge to the conservative movement how we get our message out there. Places like The Daily Signal are valuable in that score. Look, if you don’t think The New York Times is telling the truth about what’s going on in Canton, Ohio, or Phoenix, Arizona, among other places, The Daily Signal will be a resource. Just the other day you had a small businessman talking about what the tax cut meant to him. He’s a valuable resource.
I hope some podcaster, blogger, goes in and interviews him and says, “Hey, what did you see and what did you learn and why is this important?” He’d be a much more powerful voice in his local community than any of us would be.
Montalbano: What can and should supporters of these tax cuts be doing to communicate this great news?
Pinkerton: The first thing they have to realize is whatever happens in November 2018 with the midterm elections, whatever happens, the Democrats and the left are coming, in a bad way, for the tax cuts.
This happened in 1982, this happened in 1990, when Republican presidents got pushed into a tax increase of some dimension or another, and I think that’s exactly what the Democrats of the left, groups like Not One Penny, have in mind. They want to not only take the tax cut back, they want to humiliate the Republicans, they want to break the Trump presidency, they want to rub Republicans’ nose in their own shame, in their minds.
Activists have to be saying to themselves, “OK, what am I going to do, here, in Anytown, USA, to make sure this doesn’t happen?”
And again, there’s so much literature now, that again, the media just aren’t interested—about the damage that the high corporate rate, the uncompetitive corporate rate, was doing to the U.S. economy in terms of factories going overseas.
I mean, anybody who’s ever been to Dublin, Ireland, the last couple decades could tell you what used to be a sleepy little place with pubs, and bicycles, and cats, and that was about it; now, it looks like London. And it looks like London in terms of economic dynamism precisely because the Irish cut their corporate tax rates 12.5 percent 15 years ago. And they’ve been enjoying a boom ever since. It’s quite something.
Now, of course, somebody will say, “Well, Mr. Pinkerton, you’re full of beans because nobody pays its corporate rate. I read a study from Ralph Nader that says, ‘Oh no, it’s all a big fake, and that nobody pays.’”
My answer to that is boloney. If nobody was paying the corporate rate, RATE Coalition wouldn’t have existed, right? We obviously thought, and we can prove, and anybody can look it up, that our members, which are mostly domestically-oriented companies—big, huge employers like Verizon, Walmart, Boeing, and so on—they really were paying a high rate and they were looking at a world where their competitors were paying a third, or a quarter as much, and so of course they had to do something.
I’m a big believer in personalizing it and bringing it down to the local neighborhood district. “Look, Mr. and Mrs. Smith, this is your community.” And, again, if a big company decides to locate here, or Germany, or Japan, or Mexico, it makes a difference to you, doesn’t it? And you just have to understand that international capital has a choice. They can locate here, or they can locate somewhere else. Now, where do you want them? Do you want your kids to have a job in the house next to you? Or do you want them moving to Chicago or China to seek employment?
Bluey: I want to continue on that theme because one of the things I love about your Twitter feed is that you share so many of these success stories and local examples that are impacting communities. Does one stand out in your mind as a really good illustration of how the tax cuts are having a effect on a community?
Pinkerton: Yeah, there’s one in Missouri. A company of metal art in St. Louis. These companies have all decided, “Look, we are going come here. We are going to offer raises, we are going hire more people.” And it’s been quite something, and again, thank God for the internet that I can immediately after this podcast go back and look up all the examples I wish I had thought of when you asked me that question.
I think that’s the kind of goal, of all of us in this arena is to say, look, let’s envision a map, so that anybody with the kind of question that you are asking me, like, “Well, what about Maryland? What about Arizona? What about North Dakota?” You say, yes, and we can even break it down by ZIP code, or by town, or by any kind of metric that would say, “Listen, let’s just see. We’re not kidding. This isn’t propaganda. It is your community, where they’re opening up a new factory, where they’re deciding to locate a new factory in Michigan as opposed to Mexico.”
Bluey: On that note, let me just say, that if we have a reader out there of The Daily Signal who has a story to share, please send us an email. Send it to [email protected] You mentioned one that we highlighted a few days ago, and we’d love to tell your story, too.
Montalbano: What aspect of the Tax Cuts and Jobs Act is having the greatest impact today?
Pinkerton: I think that, frankly, that it’s the corporate rate. It was a big effort to alleviate the massive competitive disadvantage that the United States had fallen into. And again, it’s one of those things, if you study history, you learn this, it wasn’t as if anybody sat 10 years ago, or 20 years ago, or 30 years ago and said, “How do we make American corporations uncompetitive in the world?”
Nobody sort of woke up one day and said, “Look, how do we do this?” Maybe Bernie Sanders did, but to my knowledge, nobody else.
When President Reagan cut the corporate rate to 34 percent back in 1986, it was mind-blowing. At the time, the average of our competitors was up in the 40s. And so, they saw what America was doing and the Reagan boom, and they said, “Hey, we want to do that, too.” And they did.
And so, of the 35 members of the OECD, 34 of them cut their corporate rate in the two decades prior to when America did it in 2017. That is, 34 of our 35 competitors had done exactly what we ended up doing only very belatedly under President Trump and the Republican Congress.
In other words, every one of them from Israel, to Ireland, to England, to Germany, to Canada; all of them cut their rates substantially. Because, even with all the tax shelters and tax breaks that a company can maneuver around and get in—and there are plenty of those—the official statutory rate still matters on what economists call “the marginal dollar you earn.”
The next dollar you earn is in fact taxed at whatever the corporate statutory rate is, and that’s what we were up against, and that meant that companies would say, “Gee, well, everything else is equal, and it’s a choice between paying a high rate or a low rate. Maybe we’ll just invert this company,” like Burger King, for example.
All of a sudden Burger King is now a subsidiary to Tim Horton’s in Canada, the doughnut place. And now it’s doughnuts plus hamburgers, it’s a much bigger company. All in Canada, all paying Canadian taxes. Not American taxes, and there’s still plenty of Burger Kings in America, but the company headquarters is now north of the border.
That was the sort of thing that was happening all over the place. I give full credit to, not only President Trump, Speaker Ryan, and Leader McConnell, but also to Ways and Means Chairman Kevin Brady and Finance Chairman Orrin Hatch, and all their members. Including past chairmen like Dave Camp of Michigan, who was a real hero in this issue a few years ago.
Bluey: Let’s talk about the labor market for a moment, because we just had a really positive unemployment report, down to 3.9 percent now. The lowest in a couple of decades. What do you think the biggest challenge is out there for businesses who are looking to hire and invest in workers?
Pinkerton: The biggest challenge I think to business, and frankly to the labor force, too, is just mismatch. It is still a challenge, and it’s a project for the Labor Department and the private-sector groups, and employer groups, and so on, is to figure out if a company in Iowa needs more machinists, how do you get more machinists to Iowa? There just aren’t enough people in Iowa to do that, so you have to figure out how to bring them down.
Over time, markets work. And there’s been a huge population boom in North Dakota, full of people moving from all over the country to go work in the oil fields there. So it takes a while.
The unemployment rate is 3.9 percent, and there are more job openings than jobless, so it’s just a question of how do we simply help people, whatever it takes, logistically, to get from A to B to go where the job is. And it’s a challenge, and nobody should make the mistake of thinking that if we somehow were to screw up the process of job creation, that it would help the jobless. That’s killing the goose that lays the golden eggs kind of thing.
It requires deliberation and patience, even as it does require some activism, including by the Trump administration. Including by Republicans to say, “No, look. We have a plan, whatever it is, to accelerate how people can go to wherever the jobs are.” And that’s an important project for the remainder of 2018, and into 2019.
Montalbano: Last month, in April, the federal government took in a record tax haul. In fact, it was the biggest monthly budget surplus ever. How does something like that happen?
Pinkerton: The supply-siders, this group that President Reagan and Jack Kemp were the leaders of back in the late 1970s and early 1980s, always made the argument that if, counterintuitive as it may seem to some people, sometimes the tax rate is so high that it actually inhibits paying taxes. People say, “Well, gee whiz, at that rate of taxation, I’m just not going to work that hard or risk my money.”
Whenever you do something, what economists call opportunity cost, the cost of doing something, whether it’s investing in a plan, or going to work that day, isn’t just what it cost you to do that. It’s also the cost of what you’re not doing. You could’ve had the day off, you could’ve just slept in.
So the idea that you would do this stuff to get something requires an understanding of what economists call the after tax return. It’s just, “OK. Now the rate is such that I feel good about doing this, it’s worth my time. Worth my effort. Worth risking my money.”
Remember, not every investment works out. Probably most of them work out badly. So you always have to be mindful that if you invest your money, you could lose it all. The minimum you think is, “Well, if I do invest it and it does pay off, I want to keep most of it.” That’s a reasonable assertion. That’s what the supply-sider always said. The so-called Laffer Curve, which just is basically a restatement of the idea of diminishing returns in taxation, that if it gets too high, economic activity, and therefore revenue, go down.
So, I think what we’re seeing is companies saying, “Look, I was happy to have $2 or $3 trillion offshore in Ireland, or the Grand Caymans, or somewhere over the mid-Atlantic, when the rate was 35 percent. But now it’s 21 percent. I can see the value in bringing it back.”
I’ll give another example. I just saw it in The Wall Street Journal last week, the rattling of all the partnerships. Again, there’s lots of categories of economic ownership. And so, partnerships is another category.
But “partnership” might sound like just doctors, and lawyers, and dentists, but it actually can be quite huge, too. And so, the firm of KKR, which is a giant equity fund in New York in the many, many, many billions, said, “Well, we’ve been paying a 7 percent rate on our partnership.” That isn’t much, but the legal limitations of a partnership—that it’s not great liquid, that we can’t really attract capital the way we’d like to—but when the rate was 35 percent, we said, “No, we don’t want to do that. We’ll stay limited as a partnership at 7 percent rather than be a corporation at 35 percent.”
But now they said, “Well, since the corporate rate is down to 21 percent, we’ll make ourselves a corporation, pay 21 percent.” So, actually, back to your point where all the revenue’s coming from, at KKR they went from unhappily paying 7 percent, to happily paying 21 percent, and they win. The taxpayers win. Everybody wins. That’s the supply-sider’s argument.
The article details further, it wasn’t just KKR, it was a whole slew of these big partnerships, these big investment firms that have done the exact same thing as KKR. They’ve all made the same calculations.
So, again, in a sense it’s sort of a free lunch, almost. All you had to do was make your place hospitable to economic activity, and lo and behold, economic activity invites itself in and you get the job, you get the benefit, you get the new store, whatever it is.
The people who opposed the tax cut didn’t oppose it because they thought it wouldn’t work. They opposed it because they thought it would work. In the sense that they were afraid that their whole argument about how terrible the Republicans, and the tax cuts, and the supply-siders are, goes out the window. And I think that’s what’s happening.
All the time people said, “The sky’s going to fall.” Well, just the opposite. As Rob said, 3.9 percent unemployment, lowest in 20 years. That’s historic.
Bluey: Let’s talk about those opponents for a moment, because you mentioned earlier the examples of 1982 and 1990. Now, various left-wing organizations have united under this umbrella group called Not One Penny, with the goal of repealing the tax cuts. What can you tell us about their effort, and what lessons can we learn from history?
Pinkerton: The history tells you, to be honest, they might succeed. That’s what it tells you. They are trying just as hard to repeal the Tax Cuts and Jobs Act of 2017, as Paul Ryan, and President Trump, and Steven Mnuchin were trying to pass it.
They failed to block it in 2017, and they fully intend to make a run at it in 2018, or 2019, or 2020. They’ll never give up. And that’s just as Barry Goldwater said, “There are no final victories.”
Something like taxes, something like the trade off between equality and opportunity, all those sorts of variables go back to Plato. They never stop.
In 1982, after President Reagan passes the tax cut of 1981, the Democrats, the media and the establishment, and a good chunk of Wall Street, all combined and said, “No, you have to kill this tax cut.” And it was a bloody, bloody, in political terms that is, process. And ultimately about a third of the tax cut got taken away in 1982.
And then in 1990, President Bush had campaigned on, everybody remembers, “Read my lips, no new taxes.” And the Democrats, the media, the establishment, combined once again to make Bush take his no tax increase pledge and nullify it. And he did. Taxes went up. The economy went into a recession, and Bush was thrown out of office.
From a Democratic, liberal, progressive point of view, that was mission accomplished. They destroyed the Bush presidency, and we got a tax increase. From their point of view, they’re just happy as clams. We have to understand that they are playing as seriously in just the opposite direction as we are. And the mere fact that the news is good only infuriates them more.
Montalbano: Keeping all of this mind, what do you think Congress should do next?
Pinkerton: First of all, having just said we have to defend what we did, I think that’s the main thing. And the RATE Coalition, frankly, is just dedicated to the corporate tax issue and that’s it.
Speaking as Jim Pinkerton, a citizen, I say that it is clearly desirable to make the personal tax cuts permanent. It was kind of a quirk in the law that it didn’t become permanent last year. It was, you could argue, necessary, the way they did it, to make numbers work, and so on.
That’s just now a project, and I think that’s healthy. I think it’s always—it’s like in football, if you’re trying to avoid getting knocked over, the best thing to do is run at the person, not just stand there and wait for them to come at you. So, I think if we were running at them with, “No, let’s make the personal tax cuts permanent,” and so on, and then whatever else comes along.
But I can’t devalue enough the danger that we face of the Democrats saying, “Well, hey, we just had a good election in 2018, and now we’re really coming for this.” Again, politics are one thing, but more money for the federal government is what they really like. And I think conservatives have to be mindful of what is coming for them.
Bluey: We’ll certainly be following the issue closely at The Daily Signal. We appreciate you sharing your perspective.