United States military spending exceeds that of any other country in the world. It surpasses that of the next seven greatest military spenders combined. China is currently the second biggest military spender, but U.S. military outlays are about three times larger than those of China. In fact, U.S. military spending is twice as great as the military spending of China and Russia combined.
In 2017, U.S. military expenses amounted to $1.36 trillion, or 44 percent of all federal spending. Total military spending currently runs at about 7 percent of U.S. gross domestic product. During the Cold War with the Soviet Union, total military spending hovered around 14 percent of GDP. U.S. military spending in World War II sometimes exceeded 40 percent of GDP. The War Resisters League estimates that U.S. military expenses in 2018 will be about $1.45 trillion, constituting 48 percent of all federal outlays.
Income taxes pay for most U.S. military expenses. Although corporations are major beneficiaries of military spending, research shows that they do not shoulder a fair share of the resulting expenses. The new tax bill will further diminish corporate contributions to military spending. This bill is widely understood as a major giveaway to giant corporations. Among many other deficiencies, it lowers the corporate tax rate and adopts a “territorial” tax system. Under a territorial system, corporations are not be taxed for income they earn in other countries. Corporations have already avoided paying about $750 billion dollars in taxes by booking profits offshore through “creative” (i.e. dubious) accounting. The territorial tax system motivates corporations to move jobs to low-taxation countries and to book profits abroad through such creative accounting.
Our basic economic problem is not excessive corporate taxation but insufficient demand due to gross income inequality. The arguments on behalf of the new tax bill are deeply flawed. Proponents claim that reducing corporate taxation will encourage investment and therefore create jobs. But abundant empirical evidence shows that reducing corporate taxation — other things being equal — increases shareholder income (and economic inequality) without stimulating investment.
Proponents also claim that U.S. corporate taxation is excessively high, supposedly discouraging investment. The legal (or statutory) corporate tax rate in the USA is 35 percent, which is indeed high relative to that in most other advanced capitalist countries. However, due to numerous loopholes and creative accounting, corporations actually pay between 13 percent and 21 percent, which is well within the standard range of corporate taxation.
Not all U.S. corporations benefit directly from military spending. One might hope that corporations outside the military industrial complex would oppose our bloated military budget and the dangerous militarism that results. However, most corporations are not hit with a really burdensome share of our huge military expenses. More importantly, corporate elites understand that military expenditures are a politically acceptable way of countering the persistent tendency towards stagnation within the U.S. monopoly capitalism.
The Rocky Mountain Peace and Justice Center’s “Peace Train” runs every Friday in the Colorado Daily.