Why Corporate Tax Cuts Do Not Guarantee Higher Wages and Increased Spending: Debunking Trickle-Down Economics

Introduction

Recent discussions around corporate tax cuts have sparked debates about their potential impact on wages and corporate spending. Some claim that these cuts will result in higher wages and increased investment, while others argue that this view is misguided. This article aims to unravel these claims, highlighting the lack of substantial evidence supporting the notion that corporate tax cuts directly lead to wage growth and increased spending.

Myth: Corporate Tax Cuts Lead to Higher Wages

Claims that corporate tax cuts will lead to higher wages for workers are often based on theoretical assumptions rather than empirical evidence. Over a century of data consistently shows that such tax cuts rarely result in widespread wage increases for the working class. Instead, the additional profits tend to be used to fund executive bonuses, stock buybacks, and other corporate initiatives that do not necessarily translate into pay raises for employees.

Historical Evidence

Historical evidence categorically refutes the idea that tax cuts lead to higher wages. Instead, it demonstrates that profits often increase when taxes are reduced, but these increases are then used for various corporate benefits that do not directly benefit workers. For instance, corporations may use the extra profits to buy back stocks or fund other investments, which ultimately sends the capital back to investors. This cycle often only benefits the wealthy, rather than the broader workforce.

Factors Affecting Wage Growth

Real wage growth is primarily driven by factors such as inflation and deflation. When the private sector allocates more capital and the state allocates less, economic growth is targeted towards consumer demand, leading to more job creation. However, it is crucial to note that corporations do not always reinvest their tax savings into increasing wages for their employees. Instead, they often choose to invest in new technologies or other corporate endeavors that do not necessarily result in wage increases.

Economic Theories and Trickle-Down Economics

The concept of the "Laugher Curve" provides insight into the effectiveness of high corporate taxes. The theory suggests that if federal tax rates exceed 18%, the total tax return actually decreases, and the economy suffers. Currently, the US corporate tax rate is 21%, far below the 18% threshold. Therefore, the notion that the US has a tax problem is misguided. Instead, it faces a spending problem, which is exacerbated by expensive government programs and an inability to control spending.

Conclusion: Trickle-Down Economics is a Bullshit Scam

Evidence over several decades clearly shows that so-called "trickle-down economics" is a misleading narrative that primarily benefits the wealthy and corporations. Despite the growing body of evidence, some people continue to vote against their own best interests. This phenomenon highlights the need for a more informed and critical approach to economic policies and their true impacts on the workforce and the broader economy.