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So How's That Republican Tax Cut Working Out for the Working Class?

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The Tax Cuts and Jobs Act was pushed by right-wing politicians and signed into law by Donald Trump on December 22, 2017. A better life for all was promised.

But did average folk even get much of a tax cut? Reporters at the New York Times found that while most people received a cut, many did not believe they had. They did not see the benefits at tax time, and progressives convinced them that the cuts would mainly benefit rich individuals and corporations. In fact, the middle fifth of the earners got an average cut of $780 in 2018. But the top 1%, already among the richest people in history, were gifted with a $30,000 handout, and that's not counting their benefits from business tax cuts. While it is true that many Americans received a tax cut, it is a more important fact that they got very little while rich people and businesses got tons of money.

And by the way, some Americans will pay more for health insurance because the tax law eliminated the penalty in Obamacare for not having health insurance. That will mean fewer healthy buyers and higher prices for those who do buy insurance.

How about other benefits? Republicans and right-wing economists asserted--few made serious arguments--that more cuts for rich people and businesses would create jobs and lift wages. This is trickle-down dogma. It may have worked in the 1960s, but not so much after Reagan's huge tax cuts in 1981 (wages sank in the '80s). There was no jump in job creation attributable to the Bush cuts of 2001 and 2003.

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And this time? Have the cuts increased real investment and given job creation an extra bump? Business investment is up but not as much as the tax-cut fanatics promised. And corporations used a lot of new money not to raise pay and add jobs, but to buy back their own stock and retire it. That lifts the value of remaining stocks and thrills wealthy stock owners and executives whose pay is linked to stock prices.

On balance, the tax cuts may have temporarily added a bit to economic output, but job growth has been pretty much more of the same. Some ups, some not so up. Job additions in 2018 were good and better than in Trump's first year, but 2014, 2015, and 2016 were about as good without massive handouts to the richest 1%. In some cases the latest numbers are negative. Unemployment for African-Americans is still over 6%. And, to mention a Trump favorite area, while rank-and-file manufacturing jobs increased by 1.8% in 2018, they had increased by 1.7% in 2017 before the cut. And in 2019, factory jobs are not increasing.

But didn't companies dish out big bonuses to their employees? About $4.4 billion is said to have gone to employee bonuses since the tax law took effect. That's not much next to $1 trillion in stock-buybacks, and it's not enough to reward many workers with anything substantial. Had the $4.4 billion been distributed widely to, say, the poorest 40 million workers, each would have received $110. That's not per week or month, but in total.

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The record on wage rates is a little better. Real average hourly pay increased between 1 and 2% a year, depending on the measure. That is better than 2016 and 2017, but 2014 and 2015 were good too. Any increase is welcome because wage growth has been lousy for most of the last forty-five years. If we'd seen real wage increases of 1 to 2% every year over that span, we'd have something very good. But we haven't. The purchasing power of the average hourly wage is now about where it was in the early 1970s. Hard to believe but true.

Tax cuts favoring the rich and corporations aren't going to promote substantial and consistent wage growth. Real solutions are well known: truly full employment, which we don't have yet, much more unionization, and a $15 federal minimum wage that is staged to reach $20. Trump's Secretary of Labor is opposed to raising the federal minimum wage even from its pathetically low level of $7.25. And he's the labor guy in the federal government. Meanwhile, the administration pushes work requirements for government-benefit programs. They won't make work pay a living wage and they want to punish people for being poor.

The lies were many and they continue. Treasury Secretary Steve Mnuchin and loud-mouth advisor Larry Kudlow claimed that the cuts would generate so much new business and additional government revenue, even at lower tax rates, that the cuts would pay for themselves. This idea was made famous by the aptly named economist, Arthur Laffer. He used it to support Reagan's tax cuts. It was bunk then and it is bunk now. Corporate tax payments have fallen and federal deficits are rising. They may hit a trillion dollars. All that money wasted and, at best, no significant gains for the working class. Not to worry. We just need more tax cuts and more deregulation. That's what some Trumpites are already pushing.

The 2017 tax cut was not mainly about growth or more jobs and better pay. Most rich Americans don't want more equality. They want more inequality, and they always want more money. None of the practical arguments for the tax cut--it will add jobs, it will lift wages, etc.--were the key motives behind the tax law. Pretty much every Republican, many conservative religious leaders, and quite a few centrist Democrats believe that it is right and just that affluent Americans never have to worry for a second about food or medical expenses or housing or how they will get from here to there for work. They have limos and many mansions while millions of people don't eat well and live in overcrowded apartments and beat-up trailers, or without any shelter at all. Progressive Democrats in Congress and among presidential hopefuls are changing the conversation. It's a hopeful sign.

We've had three major tax cuts in 38 years. They've all been about making sure that rich people get richer. The top 0.1% is 400% richer than it was in 1980. The bottom 50% has gained just a couple of percentage points of income over four decades. Conservative tax policies reflect and enlarge the power of big capitalists and rich people (June 20, 2019).

Some sources: A key source is Jane G. Gravelle and Donald J. Marples, The Economic Effects of the 2017 Tax Revision: Preliminary Observations (Congressional Research Service, May 22, 2019). Michael Hiltzik, "Tax Cut Review: Bust for Most," Los Angeles Times, May 30, 2019, C1, C5, an exposition of the Gravelle report, is shorter and easier to digest. BLS.gov, Economic Reports of the President, and other federal sources for wages, jobs, and GDP. Also useful were Ben Casselman and Jim Tankersley, "Face It: You (Probably) Got a Tax Cut," New York Times, April 14, 2019 at nytimes.com; and Kimberly A. Clausing and Edward Kleinbard, "What Trump Gave in Tax Cuts He Took Away with a Trade War," Los Angeles Times, June 5, 2019.

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Frank Stricker Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

ProfessorEmeritus of History, Labor and Interdisciplinary Studies, California State University, Dominguez Hills.
Author of Why America Lost the War on Poverty--and How to win it (Univ. of North Carolina Press, 2007)

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