House Republicans recently passed a 2018 GOP budget resolution that would effectively increase the national deficit by $1.5 trillion to pave the way for President Trump’s proposed tax cuts. The truth is this is just step one in a lengthy process that is sure to last a lot longer than the Thanksgiving goal set by Paul Ryan. And the reason for that could be tied to the adage, “the truth is in the details.”
And as the details of this proposed tax cut play out, it is important to understand that no matter what details end up sticking that there will always be one fundamental factor driving the overall proposal: faith.
Faith that a corporate tax cut (from 35 percent to 20 percent) will bring back jobs. Faith that a corporate tax cut will lead to increased wages. Faith that a trickle-down economics approach will finally work.
When it comes to this tax plan, Republicans have agreed that this will inevitably result in a big tax cut “for all.” However, and without details, Republicans are finding it hard to agree on how they will get there. In contrast, when it comes to corporations, the message has been unequivocally clear among conservatives: “cut the corporate tax rate and bring back jobs and raise wages.” Which will effectively put all our eggs in the corporate “faith” basket. But are those eggs even needed?
First, on the point of this tax cut bringing “jobs” back to America. This has been a huge talking point for Republicans since Donald Trump took over as party leader. But as of September 2017, the national unemployment rate was at a meager 4.2 percent. Are they referring to manufacturing jobs?
Let’s just take a closer look at the states the president referred to when he spoke about “bringing manufacturing jobs back” from overseas. According to the Bureau of Labor Statistics:
• In Wisconsin, the unemployment rate sat at 3.5 percent in September 2017 (down 1.4 percent from the average unemployment rate for the year 2007).
• In Michigan, the unemployment rate for September 2017 was at 4.3 percent (down a whopping 2.9 percent from 2007).
• In Ohio, the unemployment rate for September 2017 was at 5.3 percent (which is a full percentage point above the national average but still 0.3 percent down from 2007).
So, if jobs coming back isn’t necessarily the issue, then what is? Which brings us to the second point of lowering the corporate tax rate to increase employee wages.
According to the Wall Street Journal, in 2016, employee compensation matched corporate profit growth — something that before Ronald Reagan’s initial trickle-down economics approach of the 1980s was a regularly held economic principle. Corporate profits go up; employee compensation goes up.
However, during the first half of 2017, as U.S. companies posted a double-digit profit growth (their largest two-quarter earnings since 2011), workers saw a slight decrease in employee compensation. This begs the question: if corporate profits are at an all-time high, then why is employee compensation continuing to fall?
I can’t even begin to answer that question, as it is well above my pay grade being one of the median salary workers of America. But as CEOs continue to make 204 times as much as the median salary of their employees, perhaps it’s safe to say that placing our faith in corporations and CEOs to do the right thing may be a bad idea.
Or maybe this time around the Gordon Geckos of the world are right and “greed is good”; that the free-market will right itself and trickle-down economics will work eventually. If they are right, and placing your faith in corporations to do the right thing after receiving a fat tax cut does equate to these proposed results, I’ll be the first to coin the phrase: “If you can’t trust a millionaire and billionaire to do the right thing, then who can ya trust?!”
Ryne Vyles is a marketing specialist in the specialty building industry.