On April 26, the Trump administration unveiled a tax reform proposal that calls for slashing rates paid by the rich and big business. If passed, the plan would carry out a massive upward transfer of wealth from ordinary working people to the wealthiest Americans. While many details of the plan remain unspecified (New York Times described it as “less of a plan than a wish list”), it concretely proposes a gargantuan 57% decrease in the corporate tax rate, taking it down 20 points from 35% to 15%. It also reduces the top income tax rate for wealthy individuals and completely eliminates taxes on inheritance.
In its current form, the plan is projected to decrease federal revenue by $5.5 trillion over the next decade. In order for economic growth to compensate for this loss of revenue, as the administration claims will be the case, the average growth rate over that same decade would have to be at least 4.5%. There is virtually no chance that this will occur, considering that not only is the global economy resting on a shaky foundation, but even presuming a recession-free decade ahead, this is nearly double the rate projected by the capitalist economists.
Given that many Republican politicians have just spent the better part of a decade throwing fits over deficit spending, decrying the ballooning federal debt in apocalyptic tones and wielding it as their favorite club with which to bludgeon social programs, the hypocrisy in their current support for Trump’s plan is palpable. “Deficit hawks” such as Senate Finance Committee Chairman Orrin Hatch (R-UT) have conveniently reconsidered deficit spending and ruled that it can be acceptable if used as a way to “[get] the economy moving faster.”
Of course, these same politicians completely dismiss the very same logic when applied to spending on, say, public education or green energy – all the more absurd when one considers that unlike corporate tax cuts, these investments are empirically proven to grow the economy by returning multiple dollars in economic value for every dollar invested.
In a cynical attempt to hide its disdain for working-class concerns, the Trump administration has also included certain populist measures in the tax bill, most notably a doubling of the standard deduction, which in isolation would benefit struggling working people who are already paying too much in taxes. However, in the context of this tax bill for the rich, it is being used as both a distraction from the fact that corporate taxes are to be cut by more than half and a cudgel to attack funding for vital social services for working people. To the extent corporate tax cuts are mentioned at all, they are promoted using the false claim that they will help to stimulate economic growth and create gainful employment.
Corporations Are Hoarding Cash
The assertion that handing out cash to the wealthy via tax cuts will drive up employment and create economic growth (“trickle-down economics”) does not hold up to even perfunctory scrutiny. A 2014 global macroeconomic study by none other than the arch-capitalist International Monetary Fund found that wider economic divides and a lack of public services were in fact robustly associated with lower growth rates.
Furthermore, it is well-documented that U.S. corporations have plenty of cash on hand already. An estimated $2 trillion is lying dormant and unproductive in corporate bank accounts and other liquid holdings – a far larger portion of total corporate capital than at any point in history. Google alone has about $80 billion in liquid capital, or about 16% of its new parent company Alphabet’s total net worth. To put that in perspective, it’s a sum of money sizeable enough to buy outright many other big corporations, including Goldman Sachs, American Express, CostCo, or eBay. Meanwhile, manufacturing titan General Motors holds nearly half of its assets in cash.
There is no reason at all to expect that giving GM or Google even larger cash reserves will lead them to make new investments that strengthen the economy. Corporations are not set up to grow the economy or create jobs; their concern is making profits and pleasing their investors. In reality, corporate executives would put share prices and their own careers at risk if they created jobs or invested capital without a reliable plan to enhance their company’s bottom line. Though conventional wisdom in the world of investment says that corporations are penalized by markets for hoarding cash, a recent meta-analysis revealed the fact that in many industries today the incentives to hoard cash actually outweigh the incentives to invest. As a result, the bulk of Trump’s corporate tax cuts is likely to go straight to the bank or into corporate executive salaries or bonuses.
Who Profits, Who Pays?
Though working people will not benefit from the corporate tax cuts, they will certainly be expected to foot the bill for them through the corresponding vicious attacks on funding for education, transportation, healthcare, jobs programs, and cleaning up the environment. This comes at a time when U.S. economic inequality is already at an all-time high and real wages have been stagnant for 30 years. Over the same period, worker productivity has increased 67%, quantifying a reality that we already know from lived experience: most Americans are doing more work and getting paid less for it.
This long-term trend is unfortunately not unique to Trump or his latest tax plan. This steady drift toward further economic inequality has continued unabated across multiple Republican and Democratic administrations, and it accelerated under Obama, who bailed out the big banks during and after the Great Recession and stood by as millions lost their homes and fell out of the middle class.
After the post-World War II boom came to a close and international competition began to intensify in the 1970s, with countries such as China and India unseating the U.S. as the “workshop of the world,” capitalism has been in a process of long-term decline marked by deeper economic crashes, tighter profit margins, and shallower recoveries. As turning a profit through investment in production became increasingly difficult, the ruling class has repeatedly turned to speculative bubbles (such as the mortgage-backed securities fiasco that caused the 2008 financial crisis) and cost reduction (lowering wages, cutting corporate taxes, slashing benefits and programs) as alternative ways of padding their bottom lines.
As long as big business and its bought-and-paid-for politicians are left to their own devices, and as long as union leaders continue to throw their organizations’ resources into campaigns for these very same politicians, working people will continue to be asked to tolerate the intolerable. This is one reason among many why rebuilding a fighting workers’ movement with political independence from the parties of big business is not only a nice idea but an absolute necessity if we hope to seriously challenge corporate power and economic inequality in the US.