The Tax Cuts and Jobs Act was pushed by right-wing politicians and signed into law by Donald Trump on December 22, 2017. Has it made life better for most Americans? Many of us say no right away, but what are the crucial facts?
Did average folk get much of a tax cut? Reporters at the New York Times found that while most people did receive a cut, many did not believe they had. People did not see the benefits at tax time, and progressives convinced them that the cuts would mainly benefit rich individuals and corporations. Which is the truth. The middle fifth of the earners got an average cut of $780 in 2018. The top 1%, who were already among the richest people in history, were gifted with a $30,000 handout, and that's not counting their gains from the cut in corporate taxes. So while it is true that many Americans received a tax cut, it is a more important fact that they got very little while rich people and businesses got a lot.
(We might also mention here Republican take-backs. For example, the tax bill eliminated the penalty in Obamacare for not having health insurance. The predicted result will be higher health insurance costs for those who buy insurance.)
How about other benefits? Republicans and right-wing economists asserted--few bothered to offer reasonable arguments--that more cuts for rich people and businesses would create jobs and lift wages. This is trickle-down dogma. It seemed to work in the early 60s, but not so much after Reagan's huge tax cuts in 1981 (wages sank in the 80s), and there was no special bump for job creation following the Bush cuts in 2001 and 2003.
And this time? Have the cuts increased investment in new jobs? Not yet. Giant tax cuts to encourage corporations to bring home the profits stashed overseas have not yet been used to add jobs. Rather there's been a surge in stock-buybacks. Companies buy their own stock and retire it. That jacks up the value of remaining stocks and makes a lot of people happy, including executives whose compensation is linked to stock prices.
On balance, the tax cuts may have added a bit to total economic output, but the job situation is more or less what it has been for several few years. Some ups, some not so up. Overall job additions in 2018 were very good and better than in Trump's first year, but 2014, 2015, and 2016 were about as good and without the tax giveaways. It is notable, too, that while rank-and-file manufacturing jobs, a favorite Trump area, increased by 1.8% in 2018, they had increased by 1.7% in 2017 before the cut. And in 2019, factory job totals are stagnating.
But aren't more companies paying bonuses to their employees? About $4.4 billion is said to have gone out as employee bonuses since the tax law took effect. That sounds like a lot of money but it is tiny next to the need and next to $1 trillion in stock-buybacks. Had the $4.4 billion been distributed widely to, say, the poorest 40 million workers, each would have received a grand total of $120.
The record on regular wages is so-so. Real average hourly pay increased between 1 and 2% a year, depending on the measure. That is better than 2016 and 2017, but 2014 and 2015 were good too. Any increase is welcome because wage growth has been lousy for most of the last forty-five years. If we'd seen real wage increases of 1 to 2% every year over that span, we'd have something very good. But we haven't. The purchasing power of the average hourly wage is still about where it was in the early 1970s.
Tax cuts favoring the rich and corporations are unlikely to promote substantial and consistent wage growth. Real solutions are well known: truly full employment, which we don't have yet, much more unionization, and a $15 dollar federal minimum wage that is staged to reach $20 soon. Trump's Secretary of Labor is opposed to raising the federal minimum wage even from its pathetically low level of $7.25. He's supposed to be the labor guy in the federal government. Meanwhile, the administration pushes more work requirements for government benefit programs. They don't want to make work more attractive; they want to punish people for being poor.
There is another key issue. Treasury Secretary Steve Mnuchin and Trump advisor Larry Kudlow claimed that the cuts would generate so much new business and government revenue, even at lower tax rates, that the cuts would pay for themselves. This idea was made famous by the aptly named economist, Arthur Laffer. He used it to support Reagan's tax cuts. It did not work then and it won't work now. Federal budget deficits will rise and Republicans, following Reagan's example, will not take responsibility for failed predictions. They will blame Democrats for rising deficits and try to cut programs that serve the lower half. Poor people will pay for tax-cut handouts going to the top 1%.
No surprise. Most rich Americans don't want a little more equality; they want more inequality, and they always want more money. The tax cuts were meant to reward big political donors and the whole class of very rich people. Some Republicans may have hoped that the cuts would provide enough stimuli to assure that the long economic boom would continue. But that was secondary. Pretty much every Republican, many conservative religious leaders, and some Democrats believe that it is right and just that very affluent Americans never have to worry about food or medical expenses or housing or how they will get from here to there for work. They have limos and many mansions while millions of people live in overcrowded apartments and beat-up trailers, or without any shelter at all.
We've had three major tax cuts in 38 years. They've all been about making sure that rich people get richer. The top 0.1% is 400% richer than it was in 1980. The bottom 50% has gained just a couple of percentage points of income over four decades. Conservative tax policy is one big reason why.
Submitted, June 11, 2019. Some sources: A key source is Jane G. Gravelle and Donald J. Marples, The Economic Effects of the 2017 Tax Revision: Preliminary Observations (Congressional Research Service, May 22, 2019). Michael Hiltzik, "Tax Cut Review: Bust for Most," Los Angeles Times, May 30, 2019, C1, C5, an exposition of the Gravelle report, is shorter and easier to digest. BLS.gov, Economic Reports of the President, and other federal sources for wages, jobs, and GDP. Also useful were Ben Casselman and Jim Tankersley, "Face It: You (Probably) Got a Tax Cut," New York Times, April 14, 2019 at nytimes.com; and Kimberly A. Clausing and Edward Kleinbard, "What Trump Gave in Tax Cuts He Took Away with a Trade War," Los Angeles Times, June 5, 2019.
Frank Stricker is a board member of NJFAC/NJFAN and Emeritus Professor of History and Labor Studies at California State University, Dominguez Hills. His new book, American Unemployment: Past, Present, and Future, will be out soon.
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