The Effects of the Latest Corporate Tax Cut Reflect Muddy Results (cont.)
Regardless, proponents say, lower corporate taxes benefit everyone, particularly job creators who pass the savings along. Trump’s Council of Economic Advisers (CEA) estimates that the Gross Domestic Product (GDP) will grow by 3-5 percent within 10 years. This will also increase the average annual salary by $4,000, the CEA estimates.
However, USA Today reports that the GDP increase will be closer to .5 percent, citing a Moody’s economist. Additionally, the average worker’s annual pay increase will be around $100, according to Eric Toder of the non-partisan Tax Policy Center. The libertarian Cato Institute estimates the increase for the average worker at $1,500 - $2,000.
There’s no correlation between size of tax cuts and wage gains. From December 2017 through April 2018, average hourly earnings increased at an annualized pace of 2.3 percent, significantly slower than in 2017. The manufacturing, wholesale trade, and transportation/warehousing industries have negative annualized wage growth compared to the previous year. “Two months ago, there was no correlation between the size of tax cuts and wage gains across sectors. Now it’s strongly negative. Companies engaged in wholesale trade reduced wages, even though they’re supposed to save 40 percent during the next decade [according to the Penn Wharton Budget Model),” writes Mark Whitehouse in the article “Tax Cuts Still Don’t Seem to Be Helping Workers” written for Bloomberg.
It’s important for a capitalist society to fuel a healthy economy that benefits not just the top earners and shareholders. The long-term effects of the corporate tax cuts’ impact on workers who are the backbone of our economic engine remains to be seen.
Economist Paul Krugman writes: “If you believe that corporations are going to share the benefits of tax cuts with workers out of the goodness of their hearts, you have to acknowledge that the price of a good heart has actually gotten higher, not lower, thanks to these tax cuts.”