Where Are Wage Gains Ryan Promised?
Companies aren’t delivering -- and never promised -- the salary hikes Republicans touted.
Back in November, when House Speaker Paul Ryan and President Donald Trump were selling the massive decrease in corporate taxes they wanted, they promised it would have huge benefits for workers. Cutting taxes for companies “will directly drive up wages for our workers,” Ryan predicted.
Trump “put a number on it, saying a typical American would see a $4,000 raise if the corporate rate was reduced to 20 percent from a high of 35 percent today,” as the New York Times reported.
And so the tax plan was passed and Ryan was soon touting its impact on average workers: “Bonuses for workers, pay increases, jobs staying here in the United States,” he tweeted. “Americans are already seeing the benefits of tax reform, just 3 weeks since it was signed into law.”
Worse, readers had to go to the jump page, 20 paragraphs deep into the story, to learn how few companies are actually giving anything more to employees. Just 39 of the top 500 American companies were giving employees financial rewards, and just eight of those were increasing wages. Most are handing out one-time bonuses, with no long-term gain for workers.
The total cash or stock-based enhancements given to workers totaled $1.7 billion, the story found, compared to an estimated $75 to $100 billion less in annual taxes these companies would now be paying. That’s about two percent of the gain going to workers this year, with no guarantee of any more in the years to come since it’s a one-time handout. “It’s a drop in the bucket,” as Nick Sargen, chief economist at the money management firm Fort Washington Investment Advisors told readers in paragraph 27, the second-last graph of the story.
Rather than devoting any serious money to better pay for workers, companies have spent most of their windfall on buying back their stock. “Such purchases reduce a company’s total number of outstanding shares, giving each remaining share a slightly bigger piece of the profit pie,” as the New York Times explained.
And the chief beneficiaries of this are wealthy shareholders and corporate leaders. Middle and lower-class Americans own little in stocks; the richest 10 percent of American households own 84 percent of all stocks, the story noted.
By mid-February, companies had “announced about $170.8 billion in stock buybacks, the most ever for this early in the year,” as CNBC reported.
But the huge break for companies “repatriating” or moving overseas cash back to the U.S. at a bargain basement corporate tax rate of 14.5 percent is expected to result in the top 500 U.S. companies buying back $450 billion in stock, as Bank of America predicted.
Or as the liberal Roosevelt Institute wryly put it, the tax reform plan should be called the “Tax Cuts for Shareholders Act.”
None of this should have surprised Ryan or the Republicans. Prior to the tax plan’s passage, companies had predicted it wouldn’t lead to higher wages but to stock buybacks, mergers and acquisitions, and investments in automation.
At a Wall Street Journal conference touting the plan, Trump’s top economic advisor Gary Cohn “asked his audience of chief executives how many of them would invest more if the tax cut were passed,” the Times reported. “When only a few attendees raised their hands, Mr. Cohn asked: ‘Why aren’t the other hands up?’”
Past history is replete with evidence that lower taxes for corporations didn’t lead to higher wages. In 2005, a tax holiday allowing companies “to repatriate money on the cheap” was championed by President George W. Bush “as a way to get American companies to invest more in the domestic economy, another Times story reported. “Some $300 billion came back to the United States that year. But economists estimated that as much as 92 percent of it may have been paid out to companies’ shareholders — mostly in the form of (stock) buybacks.”
“As many experts have pointed out, corporate tax cuts passed by Congress and signed into law by President Ronald Reagan in the 1980s did not turbocharge wages or investment,” a Times story noted. “Similarly, a series of corporate tax cuts in the last 10 years or so by Labour and Conservative governments in Britain — to 19 percent, from 30 percent — did not produce a boom in wages or investment. In fact, wages grew faster in the United States, according to an article on Vox by Kimberly Clausing, an economics professor, and Edward Kleinbard, a law professor.”
If Ryan and President Trump were serious about reforming taxes to help workers they could have cut taxes on the middle class and expanded the earned-income tax credit for poorer workers. This would have assured that 100 percent of tax benefits went to workers, rather than a tiny percent of it.
But the real goal of the tax plan was to reward the super rich, the same people who increasingly provide most campaign donations. The percent of all campaign donations coming from the wealthiest 0.01 percent of Americans has risen from 15 percent in 1980 to 40 percent in 2016, a recent study found. It’s hardly a coincidence this group will get the lion’s share of money from the Republican tax plan.
As the overwhelming evidence of who was benefitting from the plan became clear, Ryan gave it one more try, with a tweet touting a $1.50 per week hike a secretary got from the tax plan. That compares to the estimated annual gain of $11 million for President Trump, winning national ridicule for Ryan.
Republicans, meanwhile, we’re finding their ads touting the tax plan weren’t working. In the special election recently won by Democrat Conor Lamb in Pennsylvania, about two-thirds of the ads for his opponent talked about taxes. Over time that dropped to 36 percent of the ads, then 14 percent, then zero, Politico reported.
The ads simply weren’t working. When the rich are getting billions and average Americans are getting peanuts, even the most ingenious marketing person may have trouble selling the situation.
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