With help from a new White House study, the Trump administration is trying to sell the idea that corporate tax cuts mean higher wages for workers. This is utter nonsense, and we — the people of the United States — know it because we’ve tested this idea a few times before.
But here we go again.
The White House says that cutting corporate tax rates from 35% to 20% would, “very conservatively,” boost average household income by $US4,000 a year, the WSJ reports.
Of course, the US has experimented with this idea before (if it were true how awesome would that be — especially now in a time of painfully slow wage growth?). But time after time, researchers and politicians alike have found that there is little to no correlation between corporate tax cuts or holidays and wage hikes.
Think about it: If tax cuts equaled wage growth, American workers should have gotten a boost when Bush cut taxes, for example. They didn’t. Aside from a brief time during the dotcom boom (1998-2000), American wages have been mostly stagnant for decades.
Bush also enacted a tax repatriation holiday, something the Trump administration is also trying to do. Then, as now, advocates for a tax holiday argue that allowing companies to bring money “outside” of the US back in at a one-time low rate will spur those companies to raise wages. It doesn’t. At least, that’s what the Senate found when it studied the impact of the holiday back in 2011.
“The report looked at the top 15 repatriating companies and found that, instead of spurring jobs and economic stimulus, the tax break was instead associated with increased corporate stock buybacks and executive pay. The report also observed that the 5.25% tax rate created a competitive disadvantage for domestic businesses that chose not to engage in offshore operations or investments, and provided a windfall for multinationals in a few industries without benefitting the U.S. economy as a whole.”
“There is no evidence that the previous repatriation tax giveaway put Americans to work, and substantial evidence that it instead grew executive paychecks, propped up stock prices, and drew more money and jobs offshore,” said Levin. “Those who want a new corporate tax break claim it will help rebuild our economy, but the facts are lined up against them. That’s why think tanks from the left and right have condemned another repatriation tax break as an unaffordable giveaway to multinationals that have stashed billions of dollars offshore and are now lobbying to get out of paying their fair share of taxes.”
In August, progressive think tank Institute of Policy Studies (ISP) looked at the US companies with the lowest corporate taxes. If what the administration is arguing is true, surely they must pay higher wages or are hiring more workers since they pay a lower tax rate.
But they don’t.
“Our calculations have revealed that the 92 firms [that pay a tax rate of 20% or less] in our sample had median job growth during this period of negative 0.74 per cent, compared to the 6 per cent job-growth rate of U.S. private sector firms as a whole,” said the report.
Companies that pay lower taxes aren’t necessarily hiring. They are, however, giving their CEOs a big fat raise.
The tax-avoiding corporations that ISP looked at raised CEO pay 18% from 2008 to 2016 (that’s adjusted for inflation). The CEOs of tax-avoiding companies that cut jobs fared even better. Meanwhile, the S&P as a whole gave CEOs a 13% pay raise over the same period.
So for the millionth time, a policy in this tax plan is benefitting the rich. But, in true Trumpian fashion, the administration will try to pretend it benefits anyone else. This strategy was on display last month, when the Treasury took down a report that said workers only bare a tiny bit of the brunt of corporate taxes.
The administration would like you to think corporate tax relief is everyone’s tax relief, and it’s trying to convince us in the most lazy, clumsy, brutish way possible.
So it just might work.
This column does not necessarily reflect the opinion of Business Insider.
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