{"id":10480,"date":"2017-11-17T19:37:01","date_gmt":"2017-11-17T19:37:01","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=10480"},"modified":"2017-11-17T19:37:01","modified_gmt":"2017-11-17T19:37:01","slug":"hot-potato-shows-why-workers-wont-benefit-from-trumps-corporate-tax-cut","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/hot-potato-shows-why-workers-wont-benefit-from-trumps-corporate-tax-cut\/","title":{"rendered":"‘Hot potato’ shows why workers won’t benefit from Trump’s corporate tax cut"},"content":{"rendered":"

Steven Pressman<\/a>, Colorado State University<\/a><\/em><\/span><\/p>\n

Many children have played hot potato, a game in which they pass a spud to other children quickly so they don\u2019t get stuck with it when the music stops. <\/p>\n

Taxes are like that potato. No one likes paying them; everyone tries to pass them to others. The game of hot potato sheds some light on the debate over Republican tax cutting plans, particularly when it comes to companies. <\/p>\n

The House just passed<\/a> its tax cut bill. It would give about two-thirds<\/a> of roughly US$1.5 trillion in net tax cuts over the next decade to businesses, mainly by lowering the corporate income tax rate to 20 percent from 35 percent. That puts a lot of money on the table. About $100 billion in U.S. corporate profits would be retained by companies rather than paid to the government each year. <\/p>\n

Treasury Secretary Steve Mnuchin has claimed<\/a> that most of this tax savings would go to workers, in the form of higher wages, in line with the president\u2019s argument that the plan would benefit the middle class. <\/p>\n

With the help of hot potatoes, let me explain why he\u2019s wrong. <\/p>\n

\n \"\"
\n Treasury Secretary Steven Mnuchin holds up a sheet of $1 bills, the first bearing his name, as his wife Louise Linton looks on.<\/span>
\n AP Photo\/Jacquelyn Martin<\/span><\/span>
\n <\/figcaption><\/figure>\n<\/p>\n

Why workers won\u2019t gain<\/h2>\n

There are two ways a corporate income tax cut can trickle down to workers\u2019 pockets: directly through higher wages or indirectly via lower prices at stores selling the things they buy. <\/p>\n

Mnuchin contends that workers currently bear 70 percent of the corporate tax burden \u2013 or get stuck with 70 percent of the corporate tax hot potato. So, a tax cut would mean that companies pass much of their tax benefits to their employees by paying them more or by cutting prices and increasing the buying power of current workers. <\/p>\n

Yet, based on past tax cuts, economists have estimated<\/a> that only 20 percent of the corporate income tax is borne by workers, suggesting that they would get just a small fraction of any corporate tax reduction. <\/p>\n

Furthermore, when asked how they\u2019d spend the gains from a tax holiday on the $2.5 trillion that they currently have parked overseas \u2013 which is also part of the corporate tax cut plan \u2013 most companies indicated<\/a> they\u2019d pay back debt, repurchase shares or invest in mergers and acquisitions. Wage hikes were not high on the corporate agenda. <\/p>\n

Nor have they been part of the corporate agenda for the past several decades. Since the 1970s worker productivity has increased 74 percent, while average wages have risen<\/a> only 12 percent. There is no reason to believe that tax cuts would all of a sudden generate greater corporate generosity for workers. <\/p>\n

As for lower prices, if the U.S. economy were dominated by small businesses, intense competition would force these companies to lower prices rather than give it to shareholders in the form of dividends. Reduced prices for goods would translate into improved living standards for workers the same way that a wage hike would. <\/p>\n

But our economy today is dominated<\/a> by large multinational corporations facing little pressure to reduce prices. So, the gains from a corporate tax cut will remain with the owners of the business \u2013 shareholders.<\/p>\n

Furthermore, corporate CEOs have large incentives to avoid passing the gains from a tax cut to workers: Executive pay is tied to the company\u2019s share price. If they pass the extra money on to shareholders in the form of dividends or stock buybacks, share prices will rise \u2013 as will executive pay packages<\/a>.<\/p>\n

\n <\/a>\n <\/p><\/blockquote>\n