On Tuesday, Congressional Republicans rushed through their tax bill—which the House has to revote on—on straight party-line votes in the House and Senate. And despite repeated claims from bill proponents that their bill is focused on middle-class tax relief, the final bill is instead primarily a vehicle for permanent corporate tax cuts.
The bill includes some tax cuts for families, but these cuts are both temporary and tilted toward high-income households. Even in the initial years, millions of families end up paying more. And in the long run, the bill uses reduced spending on health programs and permanent middle-class tax increases to pay for these corporate cuts.
The bill’s proponents understand that corporate tax cuts are incredibly unpopular. One September poll found that six in 10 Americans actually believe that corporations don’t pay enough in taxes. So in the course of selling the bill, these proponents have made outlandish claims that these cuts will trickle down in the form of huge wage growth for workers. That claim is not backed up by economic evidence, nor has it ever been.
Some argue that corporate tax cuts lead to wage and job growth because they encourage corporations to invest in additional capital. But if companies are unwilling to invest in today’s environment—with extraordinarily high after-tax corporate profits and low interest rates—it is unlikely they will do so after a corporate tax cut.
Evidence from 2004, when a repatriation holiday allowed corporations to bring back overseas profits at a lower rate, provides a good case study. The 15 companies that brought the most profits back to the U.S. used them to buy back shares instead of boosting investment, and actually ended up cutting jobs and slightly lowering their research and development spending.
And you don’t have to take economists’ word for it. CEOs openly admit that corporate tax cuts will lead to shareholder gains, not workers’ raises. When Bank of America Merrill Lynch asked 300 executives this summer what they would do if a tax plan allowed them to bring overseas money back to the U.S. at a low tax rate, the top two responses were paying down debt and buying back stock—in short: helping shareholders, not workers. What’s more, the CEO of Wells Fargo (WFC) recently explained that his company would use the tax cuts to buy back shares and boost dividends “next year and the year after that and the year after that.” So much for trickle-down.
Unfortunately, as evidenced by today’s low wage growth amid high corporate profits, U.S. workers do not have the bargaining power needed to get their fair share from their bosses. As a report from Jane Gravelle at the Congressional Research Service notes, some studies that show workers accruing larger benefits from corporate taxes are driven by the effects of higher union membership rates. In the United States, where only about 6% of private sector workers are union members, it is unlikely that workers will be able to take advantage of much of the bill’s corporate cuts.
If President Trump and Congress truly wanted to help workers, there are clear ways to do so. The tax bill could have expanded the Earned Income Tax Credit (EITC) for workers, including those without children, an idea with previous bipartisan support that would raise pay and encourage work. And instead of pushing corporate tax cuts, lawmakers could make it easier for workers to collectively bargain, which would ensure that workers brought home a fairer share of company profits.
But instead, Congressional Republicans have doubled down on failed trickle-down economics. The windfall gains to the wealthy contained in this tax bill will dramatically outweigh the temporary—and relatively small—benefits to low- and middle-income families. In Tuesday’s bill, despite promises to the contrary, CEOs and shareholders won out at the expense of workers.
Alex Rowell is a research associate for economic policy at Center for American Progress.