Most of us can probably recall that when Republicans were passing their massive tax cut for corporations, they were claiming that corporations would take that tax savings and pass it along to their workers:
From a document titled, “Corporate Tax Reform and Wages: Theory and Evidence,” on the White House’s website:
“Reducing the statutory federal corporate tax rate from 35 to 20 percent would, the analysis below suggests, increase average household income in the United States by, very conservatively, $4,000 annually.”
The document goes on to say:
“When we use the more optimistic estimates from the literature, wage boosts are over $9,000 for the average U.S. household.”
No less than Speaker Ryan’s website trumpeted the Council of Economic Advisers report claiming that on average, the proposed corporate tax cuts would result in at least a $4,000 annual increase in wages.
This, of course, was not a statement based on reality. Corporations have never increased wages just because they have extra money. They are not charities. They increase wages only when they have to increase wages. Wages are an expense. Businesses increase expenses only when they expect a return on that investment. Otherwise, they try to reduce expenses. This claim that Republicans used to try to drum up support for their corporate tax giveaway was a lie, just like all of the other lies they have told for years to gain support for what they call supply side economics, but what most people now call Trickle Down Economics.
To further illustrate why it is a lie, let’s look at what does increase wages, according to the Harvard Business Review:
For wages to grow on a sustained basis, workers’ productivity must rise, meaning they must steadily produce more per hour, often with the help of new technology or capital. Further, workers must receive a consistent share of those productivity gains, rather than seeing their share decline. Finally, for the typical worker to see a raise, it is important that workers’ gains are spread across the income distribution. If wages are rising but the increases are all going to the best-paid workers, the typical worker doesn’t see a gain.
As they note, two of the three conditions required for wage growth are not being met in the United States:
In a notable shift from earlier decades, labor’s share of income is no longer constant, but has fallen from nearly 65% in the mid-1970s to below 57% in 2017. Though some of this decline reflects measurement limitations, much of the decline is plausibly due to shifts in technology and market structure that have disadvantaged workers. Even as the share of income channeled to labor has declined, the distribution of income has become more unequal. Since the late 1970s, large wage gains have accrued to workers at the top of the distribution, and wages have been declining or stagnant for the bottom half of the income distribution.
For wages to grow, these two conditions need to be fixed: workers must see a share of productivity gains, and worker’s gains must be spread across the income distribution.
Giving corporations a tax windfall does nothing to help meet those two conditions. The tax windfall for corporations just equates to extra profits. If current profits weren’t meeting those two conditions, why would more profits meet those two conditions? The problem isn’t that there hasn’t been enough profits. The problem is that the profits have not been distributed to the workers across the income distribution.
And this has been borne out in the data so far. Wages are not increasing as a result of corporations having even greater profits thanks to the tax cut.
We see that real wage growth peaked in 2015. Since then, it’s been trending down, except for a brief pop in 2017. And it’s been about zero in recent months.
What will help wages rise? Let’s go back to the Harvard Business Review’s analysis:
There is no single wage growth panacea, but many policies would help, including: raising the minimum wage; increasing worker bargaining power (including by reducing noncompete contracts or collusion among firms); ensuring adequate labor demand through looser fiscal or monetary policy; increasing dynamism through pro-mobility or entrepreneurship policies; and making broad improvements to education or productivity policies.
To sum up their findings as to what would increase wages, it would involve these main policy improvements:
- Increase the minimum wage.
- Increase worker bargaining power, which is what unions have historically done.
- Increasing labor demand through fiscal policy, which has historically been done through investments in infrastructure.
- Increasing entrepreneurship and job mobility, which is currently hindered by the fact people are tied to employer based health care.
- Improvements to education policy.
Minimum wage, unions, infrastructure, health care, education.
These are policy improvements Democratic politicians have been prioritizing. Republican politicians, meanwhile, have been fighting each and every one.
Instead, Republican politicians are attempting to pass yet another tax cut, which will yet again do nothing to improve wage growth.
One of the new legislative package’s biggest sticking points is its price tag: an estimated $627 billion over the next decade, according to a recent analysis by the Joint Committee on Taxation. That’s on top of the $1.5 trillion the already-passed tax cuts are projected to cost over the next decade.
It’s almost like Republican politicians just don’t care about wage growth. Nor do they care about fiscal responsibility. All they care about is greater profits for corporations, profits that go to the wealthy and never trickle down to the rest of us.