They never seem to learn
Yet the previous incarnations of quite a few of the Republican ideas were tried recently enough that they should be glaring examples. It seems the Republicans have simply failed to review the history of previous tax reform efforts and their net effect on the economy. Among the most prominent of these is providing major corporate tax relief with no indication of how that will translate into more jobs and better wages. The tendency is rather for any windfall in corporate treasuries to be applied to increased (or ‘special’) dividends and stock buy backs.
It would be different if there were strong incentives to provide worker training to upgrade productivity. That would speak of at least a reason to believe the Trump administration and Republican Congress understood and supported a drive to increase wages. After all, what incentive is there for a company to pay higher wages unless their workers are more productive? And this is not just our view. All of the recent recommendations from the OECD, IMF and other NGOs have noted the lack of productivity gains (along with still weakish global trade) as the reason the middle class has missed out on the benefits of the recovery since the 2008-2009 Crisis.
And current students of the efficacy of tax policy agree that Washington DC (and other countries’) politicians’ penchant for thinking tax policy can alter economic performance with salutary benefits for the broader public is a self-serving conceit. It can help them get elected with little actual responsibility for the outcome. Even if the overall economy is indeed stimulated by the lower tax rates, what are the longer-term fiscal effects?
One of the more aggressive naysayers on the great expectations flowing from the current administration’s promises of middle class benefits is Nick Hanauer. He is a very successful venture capitalist who has founded and sold several companies, and is also an economic thinker civic activist with a broad understanding of the economy.
In a CNBC interview last Thursday, Hanauer laid out his views on why the Trump tax reforms would not trickle down to the middle class and workers nearly as strongly as the administration and its acolytes are attempting to imply. The history of lower corporate taxes is that 55% of corporate profits have been going into stock buybacks, with an additional 37% going into dividends.
When challenged by CNBC’s Michelle Caruso-Cabrera that Reagan tax cuts after the high tax Carter era were the driver for the major economic expansion. Hanauer countered that Bill Clinton raised taxes, and also managed to preside over a major economic expansion. The additional obvious factor in the Clinton economic and equities boom was the aggressive internet growth that begat the Dot.Com Bubble. Yet as Mr. Bill left office in early 2001, he gets the credit for the boom and not blame for the bust.
Hanauer’s ultimate point was that the only way to benefit the middle class is higher wages and infrastructure spending. As we have noted many times, higher wages can only be achieved and sustained through higher productivity.