Been there, done that
One of the icons of right-wing fairytale economics is the Laffer Curve. It purported to show that if taxes were raised too high, the tax income would fall. Casual inspection revealed that there were no labels on the ordinate or abscissa, so it was impossible to say at what level of taxation “too high” occurred.
Nevertheless, the notion that all tax cuts are good is part of the canon of GOP religion, despite the facts that (a) the cuts never pay for themselves and (b) the result is increase debt, something the right only deplores when they’re out of power.
I was living in Missouri when the neighboring state of Kansas under Republican Gov. Brownback tested the tax cut dogma. It didn’t go well:
“In the early days of the Kansas plan, the optimism was real. Some small business owners said the pass-through exemption gave them more cash to hire. There was even a brief uptick in job growth in 2012 and early 2013, just enough for Brownback and his allies to declare the experiment a success in the making. But those gains quickly faded. The state’s job growth soon fell behind neighboring states and the national average, and by 2014, even some Republicans were quietly acknowledging the numbers didn’t add up.
“They were right to worry. Tax revenues fell by 11 percent in the first year alone. The state’s credit rating was downgraded multiple times. Some school districts shortened the school year by 12 days to save money. Infrastructure projects were delayed. Medicaid was squeezed so much five hospitals closed. If there was any iconic image of the cuts, it was of foster children who slept in the state offices because there wasn’t enough staff to place them in homes.
“Brownback’s administration resorted to short-term fixes like highway fund raids and pension deferrals to plug growing budget holes. And while conservatives pointed to national economic headwinds, the contrast with more stable (as well as deeply conservative) neighboring states was hard to ignore.
“The backlash came swiftly and from within the Republican Party itself. In 2016, a wave of moderate Republicans and Democrats ousted conservative incumbents in primaries, forming a bipartisan legislative bloc strong enough to override Brownback’s vetoes. Much of the original tax-cut package was repealed by 2017. Later that year Brownback, now with the worst approval rating in the country, took a job inside the Trump administration and skipped town.”
Here we are again. The definition of insanity is doing the same thing over and over and expecting a different outcome. There’s nothing conservative about this. To paraphrase William F. Buckley, Jr.: “A conservative is someone who stands athwart the steamroller of the Trump GOP, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it.”
The Trump GOP repeats the failed Kansas experiment
Nevertheless, the notion that all tax cuts are good is part of the canon of GOP religion, despite the facts that (a) the cuts never pay for themselves and (b) the result is increase debt, something the right only deplores when they’re out of power.
I was living in Missouri when the neighboring state of Kansas under Republican Gov. Brownback tested the tax cut dogma. It didn’t go well:
“In the early days of the Kansas plan, the optimism was real. Some small business owners said the pass-through exemption gave them more cash to hire. There was even a brief uptick in job growth in 2012 and early 2013, just enough for Brownback and his allies to declare the experiment a success in the making. But those gains quickly faded. The state’s job growth soon fell behind neighboring states and the national average, and by 2014, even some Republicans were quietly acknowledging the numbers didn’t add up.
“They were right to worry. Tax revenues fell by 11 percent in the first year alone. The state’s credit rating was downgraded multiple times. Some school districts shortened the school year by 12 days to save money. Infrastructure projects were delayed. Medicaid was squeezed so much five hospitals closed. If there was any iconic image of the cuts, it was of foster children who slept in the state offices because there wasn’t enough staff to place them in homes.
“Brownback’s administration resorted to short-term fixes like highway fund raids and pension deferrals to plug growing budget holes. And while conservatives pointed to national economic headwinds, the contrast with more stable (as well as deeply conservative) neighboring states was hard to ignore.
“The backlash came swiftly and from within the Republican Party itself. In 2016, a wave of moderate Republicans and Democrats ousted conservative incumbents in primaries, forming a bipartisan legislative bloc strong enough to override Brownback’s vetoes. Much of the original tax-cut package was repealed by 2017. Later that year Brownback, now with the worst approval rating in the country, took a job inside the Trump administration and skipped town.”
Here we are again. The definition of insanity is doing the same thing over and over and expecting a different outcome. There’s nothing conservative about this. To paraphrase William F. Buckley, Jr.: “A conservative is someone who stands athwart the steamroller of the Trump GOP, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it.”
The Trump GOP repeats the failed Kansas experiment
The reason tax cut can’t work as Laffer dreamed is because they do nothing to effect the distribution of the collectively generated income.
Tax cuts are not the same as getting a pay increase. They are a government subsidy to an employer’s payroll.
A bit O’ Brookings for you . . . eventually. The 2017 tax break was heavily skewed to the upper income bracket Unless I am full of crap here. Maybe? How would giving tax breaks to the lower income brackets actually or might work. First, corporate taxes do not need to be cut. Why not jusst give them the money and make them pay employees from the tax break? And wouldn’t you know, some other org recommended such!
When congressional Republicans and the Trump administration pushed for their tax cuts in 2017, they promised American workers that slashing the corporate tax rate would raise their wages.
“They offered two rationales for this promise: that companies would share some of their gains with workers right away by raising their pay, and that they would also invest more in equipment, thereby raising productivity and worker wages over time. Indeed, higher wages were supposed to be the main benefit to the broad public of a tax cut package that otherwise was heavily tilted toward the rich and inflated the national debt.
But, to date, those predictions have mostly failed to come true. Corporate stock buybacks have swamped other uses of the tax savings. Wage growth has edged up very modestly since the tax cuts passed, more likely due to tight labor markets than the tax cut. When helping workers, many companies have chosen one-time bonuses instead of permanent increases (no surprise there . . . but, but the gov. could have made the tax break dependent on increased salary. Yes?) in base pay. Furthermore, the growth in investment has also been modest, and more likely driven by high oil prices than lower taxes.
But a different version of the same corporate tax cut could indeed raise worker wages. Suppose Congress, which cut the corporate tax rate from 35 percent to 21 percent in 2017, clawed back several percentage points — and then doled them back out to companies that actually paid their workers more. In this case, the overall size of the corporate tax cut could remain the same, but it would encourage companies to raise wages.
How would such a tax law work? In one approach, firms could earn reductions in their tax rate for annual wage increases above a certain base rate of wage growth, with tax cuts growing larger as wage growth rises. And firms that already pay their workers above their industry average might also get a tax cut, with larger cuts for companies paying more above the average. We could also provide additional tax cuts for profit-sharing, generous benefits or even apprenticeships through which companies invest in their workers’ productivity and pay.
Yes, corporate tax cuts can raise wages. Here’s how
@Becker,
“The reason tax cut can’t work as Laffer dreamed is because they do nothing to effect the distribution of the collectively generated income.”
Wait. I thought gravity was supposed to take care of that: “trickle down.”