- The tax cuts had a negligible effect on economic growth, 0.3% at most.
- Far from paying for themselves as Republican proponents claimed, they produced less than 1/20th of the growth that would have been needed
- In fact, they caused federal revenue to fall. Overall revenue fell in 2018, largely because of a $40-billion decline in corporate tax revenue.
- But working individuals didn't get a tax cut at all. Although the legislation increased the standard deduction and child credit, whatever tax reductions those would produce for families were “largely offset” by the elimination of personal exemptions, and limitations on itemized deductions such as those for state and local taxes.
- People didn't get a wage increase either. “There is no indication of a surge in wages in 2018 either compared to history or relative to GDP growth.” Real wages (that is, adjusted for inflation) increased by only 1.2% in 2018. “Ordinary workers had very little growth in wage rates.”
- Corporate shareholders, however, have made out great. The repatriated earnings mostly have been used for “a record-breaking amount of stock buybacks, with $1 trillion announced by the end of 2018.”
The bottom line, then, is becoming clearer with every quarter. The tax cuts did almost nothing for ordinary Americans and may even have cost them money. The apparent gains in their income were negligible and short-lived. Wealthy Americans reaped the benefits of lower taxes and higher dividends. The cuts had a negligible effect on U.S. economic growth while depriving the government of revenue.
Put it all together and this massive restructuring of the U.S. tax system should prompt average Americans to ask Republicans in Congress and the White House that age-old question: Who are you really working for?
We already know the answer.
6 comments:
Corporate taxation appears to be free money without consequence.
Corporate taxes are just another cost of doing business that is passed on to the consumer in the form of higher prices.
Corporate tax is a hidden consumer tax just as VAT taxes are in Europe.
T.A.N.S.T.A.A.F.L
This is actually definitively not true. Corporate taxes are levied on profits, not revenues. They are not included in the price of a product, they are what's left over after the cost of production. I could get into the economic theory about this (I have a doctoral degree for which I had to pass qualifying exams in economics, so I know what I'm talking about), but I will just say quickly that according to standard economic theory, profits in the long term are driven to zero in a perfectly competitive market. Corporate profits represent what economists call rents. They are not part of the cost of goods and services. You might have noticed that after the tax cuts, consumer prices did not come down, but continued to rise at the same (currently fairly low) rate as before. What happened instead is that more of the profits went into the pockets of shareholders.
So, no. You are mistaken.
I, too, have some credentials in this area having undergrad BS in Business, being a CPA and an MS in taxation. Also have heavy background in macro, micro and econometrics.
Economic theory is fun and elegant, but it's notorious for being wrong in the real world. Paul Krugman famously predicted a world recession as soon as Trump was elected. You also might have noticed that the cost of health insurance didn't go down with the ACA, either as was predicted by many economists.
So, from out of the world of academia and into the world of business, when you have to shell out money that would otherwise increase your bottom line, it's an expense to the rest of us.
No it isn't. This isn't just theory, as I say the empirical fact is that the tax cuts went to shareholders, not workers or consumers. Let me try one more time to explain why this is -- and it has nothing to do with anything you learned in accounting class.
Corporations compete with each other. If there are 15 flange manufacturers, they have to get consumers to buy their flanges which either means selling them for less than the next guy, making better ones, or advertising more heavily, whatever. It's supply and demand in the context of competition that sets the price. Theoretically, that will drive corporate profits to zero in a situation of perfect competition, but that never exists. Corporations try to set prices, quality, and marketing expenses so as to maximize their profit, and whatever profits they do extract are rents created by imperfect competition and information. They will do that regardless of what percentage of profit is taxed away. A tax on corporate profits has no effect on prices, quality or wages -- profits are what's left over after all of that is accounted for.
The decision about the level of taxation is about not sending investors to another country or another industry that's taxed differently. Investors should make a return, in order to encourage investment, but the proper amount of that depends on what other investment opportunities there are. Meanwhile, corporations consume social resources -- highways, law enforcement, externalities, etc. -- so they should pay taxes on their profits.
And there is plenty of evidence that the ACA did indeed constrain growth in health care costs, which slowed substantially after passage. Krugman was not basing his prediction on economic theory, but on how he thought investors would react. It may still come true if the Resident continues to make such idiotic economic decisions.
Yep, that's why corporation flooded Ireland with it's low taxes. Ya' know, because taxes don't matter.
Well duhhh. Corporate profit taxes matter to the investors, that's precisely my point. They don't matter to consumers, however, which was what you originally claimed.
Multinational corporations do establish what are called "domiciles" in lower tax countries in order to avoid taxes. That doesn't cause them to lower their prices to consumers, there or in other countries where they do business. It causes them to enrich their shareholders. U.S. tax law does tax profits made in the U.S., but they have various dodges whereby they ascribe expenses to higher tax countries and profits to lower tax ones. Right now there are international negotiations underway to try to reduce tax avoidance of this nature.
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