Tax Cuts won’t Create Economic Growth

For years, Republican politicians, economists who work in conservative think tanks, and CNBC have told us that rich people are “job creators.” These snake oil salesmen assure us that the Trump tax cuts, which primarily benefit the wealthy, multinational corporations, and banks, will lead to higher wages and more jobs. However, the real world doesn’t work that way.

David Mendels, former chief executive officer of software firm Brightcove, told the website Politico that a lower corporate tax rate will definitely not generate bigger worker paychecks. “I think they are bonkers… No CEO sits there and says, ‘When my tax rate goes down, I’m going to hire more people and pay them more.’”

Corporations are already sitting on two or three trillion dollars invested in bonds, short-term loans to other corporations, and other speculative items. The problem is that most of their customers, more than 80% of Americans, have wages that are lower than they were in 2000 (if you adjust for inflation.) Young adults, unlike the Boomer generation, don’t have money to start a family, buy a house, or splurge on furniture and appliances. In 1970, ninety percent of adults age 30 earned more money than their parents did at the same age, adjusted for inflation. In 2014, only 50 percent of adults age 30 made more than their parents did when they were 30.

So giving corporation a tax break won’t encourage investment, customers don’t have extra money. Corporations know this and they have an alternative strategy: they will use their tax bonanza to raise dividend payment to their stockholders and to buy back their own stock – increasing the value of the shares that are left on the market. Cisco Systems, Pfizer, Inc., Amgen, and Coca-Cola have already announced this is what they will do. A survey by Merrill Lynch in July of 2017 found that 65% of Fortune 500 companies plan to use their tax breaks solely for dividends and stock buybacks.

Rising dividends give big chunks of money to stock holders and stock buybacks trigger bonuses for corporate executives – isn’t that a form of trickle down buying that will stimulate the economy? Again, not much. The top 10% of people on the U.S. income pyramid currently own 81% of stock wealth. The other 19% is primarily locked away in retirement plans of one sort or another.

The richest 10% of the population already owns sports cars and SUVs, large houses and vacation getaways, yachts and sailboats. As they did in 1982, when Reagan cut taxes for corporations and the rich, in 1997 when Clinton slashed taxes on capital gains, and in 2001 and 2003 when Bush pushed through huge tax cuts, the 10% will take most of their windfall cash and invest it in stocks and derivatives and commodity speculation. That is why the stock market is up by more than 25% since Trump was elected – stock owners want to be in the game when another speculative boom occurs.

John Bogle, founder of the investment fund Vanguard Group said in November that the Republican tax plan is a “moral abomination” because stockholders will receive all the benefits and workers will receive very little. In fact, the rich are stealing our future.

6 thoughts on “Tax Cuts won’t Create Economic Growth”

  1. I am trying to decide if the Republicans in Congress are sadists or “true believers” (ala Eric Hoffer.) They have to have one or both of these traits to have produced the tax “reform” or “overhaul” or whatever this abomination is.
    Currently, I’m leaning towards sadist.

    1. I think you are right, as true believers have levels of integrity that are not apparent in the Republican leadership.

  2. This is an excellent post which I’m sharing with my friends. I suspect the Rs know the game is almost up and are grabbing as much as they can before, I hope, losing control of Congress. But the damage will be substantial until forces change at the national level for both Congress and the Presidency. I also think the Ds have been way too passive on this and suspect many of them, being corporate $ dependent themselves, are willing to let it happen. I hope not but it looks that way to me.

    1. Most of the Dems have been too passive, allowing Sanders and Warren to carry the burden of outrage. However, they have remained united in opposition. This is new – the Reagan tax cuts and the Bush tax cuts received substantial numbers of Democratic votes, allowing the fig leaf of bi-partisanship to be waived. This time, the blame falls directly on the Republicans and I suspect it will be a campaign issue. As for the 2018 elections, remember only 40% of the electorate turns out in mid-term elections, who comes out to vote determines the results. This tax bill will not excite the Republican base, but it will anger Dems, so the results could be like in Virginia this fall, where Democratic turnout was higher than Republican turnout.

  3. The Republicans have done the only thing that really mattered to them: make the rich richer. Immigration has always been a means to channel white working class anger into something vile and destructive, as is the pandering to racists and Nazis. Not neo Nazis, they are out and out Nazis. But really only a side show to real agenda. Make the rich richer.

    1. If you look carefully, the two big things on the Republican agenda this year were repealing ObamaCare and the Trump tax cuts. Both involved significantly reducing taxes on the rich and corporations. There are no other priority items on their agenda.

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