I saw this at The Hill —
Kevin Hassett, chairman of the Council of Economic Advisers, said on a call last month the main reason why cutting the corporate tax rate would boost wages is because doing so would make it less expensive for companies to invest in capital assets such as machines.
“More assets like machines let workers produce more, and when workers can produce more, businesses can afford to pay their workers more,” he said last month.
That’s a really great theory. I wonder how it works out in practice?
The Economic Policy Institute has a pretty good answer. For the 25 years from 1948 to 1973, labor productivity improved by 97%, and hourly compensation went up by 91%. So it works, right? Productivity trickles down to wages!
Not so fast, though. For the last 43 years, from 1973 through 2016, productivity went up another 74%. Average hourly compensation went up 12%. Trickle down no longer trickles, and instead we have obscene levels of executive pay, record corporate profits, record stashes of offshore cash and ever increasing income and wealth inequality. Link through & look at their graph — it’s pretty clear.
I wonder what changed in 1973? Of course, since then we’ve seen Reaganomics, union-bashing, Bush tax cuts and some other pretty bad economic policy. We’ve seen WalMart, Amazon, the PC and the internet commoditize most consumer goods and eliminate a whole host of jobs in retail, administration and white collar jobs. We’ve seen globalization and automation eliminate blue collar jobs. And we’ve never seen any significant economic or social policy to counter these trends.
If you’re stuck in the 50’s, or even the 60’s, you might think that trickle down works. The last 50 years says it doesn’t, not any more.
And CEOs know it. The main point of The Hill’s article was that when asked how many CEOs would increase investment if their tax bill went down, only a very few agreed that they would. and they caught republicans by surprise:
White House economic adviser Gary Cohn appeared surprised at an event after few CEOs said they planned to invest more if the GOP's tax plan is passed.