Remember just before the new year when Donald Trump signed into law the Republican “Tax Cuts and Jobs Act?”
Remember how Republicans promised it would result in higher middle-class wages?
Economists have had half a year to evaluate its impact on business and the economy.
And their findings are not good.
According to Bloomberg, instead of the higher wages the GOP guaranteed, actual average hourly compensation fell in the first quarter after the tax law was passed.
An indication of how effective the tax breaks are is how much businesses are spending, because, of course, when corporations have more money, so do their workers. (At least that’s the way it’s supposed to work.)
But that is not the case.
Instead, stock buybacks appear to be soaring. Since the tax cuts passed, businesses have been using their additional capital to pay off shareholders–not employees–to the tune of more than $700 billion in the first two quarters.
What this means is investors can increase consumption; i.e., more resources transfer to the wealthy, who can invest the money in other companies with better growth potential.
Republicans love to tell the American taxpayer cuts will “pay for themselves.”
Bloomberg states, however, a sluggish growth rate makes the cuts unlikely to do that.
Back in the 1980s, “supply-side” economists argued income tax cuts would stimulate enough of the economy to drive down deficits.
Most economists no longer believe that.
Troy Taylor, CEO of Florida’s Coca-Cola franchise, for example, said at the Dallas Fed:
“It’s [increasing employees’ salaries] just not going to happen. Absolutely not in my business.”
Not only are CEOs brazen enough to concede their greed; they are overtly working to “reduce their workforces further.”
“The message is that Americans should stop waiting for across-the-board pay hikes coinciding with higher corporate profit; to cash in, workers will need to shift to higher-skilled jobs that command more income.”
The tax overhaul passed in December is adding $1.5 trillion to the national debt over 10 years. Former President Barack Obama’s Treasury Secretary Jack Lew argues it could “leave us broke” and fears how the deep cuts to social safety programs could blight our country for decades.
Lew said in a Bloomberg interview:
“I fear that the next shoe to drop is going to be an attack on the most vulnerable in our society. How are we going to pay for the deficit caused by the tax cut? You’re going to see proposals to cut health insurance from poor people, to take basic food support away from poor people, to attack Medicare and Social Security. One could not have made up a more cynical strategy.”
Instead of crippling cuts, Lew asserts what the country needs is investment more jobs training, education, and infrastructure.
“What we’ve seen is a tax cut that spends money we don’t have, to have very concentrated benefits for global corporations and the top 1 percent, and it’s leaving us broke so that we cannot deal with these fundamental problems.”
If we recall, Republicans crowed about President Obama’s 2009 American Recovery and Reinvestment Act of 2009 being too high at $787 billion over 10 years.
The difference is 2009’s economy is not today’s economy.
In 2009 the economy needed stimulation after former president George W. Bush left the White House with the nation deeply in debt due to two unfunded wars and tax breaks for the wealthy.
When Barack Obama stepped into the Oval Office, we were hemorrhaging 700,000 jobs per month.
The Republicans’ current $1.5 trillion tax cut combined with hundreds of billions of dollars in federal spending will provide a larger short-term stimulus than Obama’s.
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