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Growing Evidence That Corporate Tax Cuts Have Not Boosted Middle Class Wages

One of the primary arguments made by the Trump administration and Congressional Republicans for last year's corporate tax cut legislation was that those cuts for business would trickle down to workers in the form of higher wages. There is increasing evidence that this isn't happening and that the cuts are just increasing income inequality as opponents of the legislation suggested.

In analyzing US wage data since last year's corporate tax cut, Jason Furman, the former chairman of the Council of Economic Advisers in the Obama administration notes:

From a recent piece in The Hill: "Finally, one of the main arguments for the tax cuts was that corporations would pass the tax cuts through to higher wages for workers. So far, at least, the data are reasonably clear that this not happening.

"In the first quarter of this year, after-tax profits grew at a 39 percent annual rate while compensation grew at only a 5 percent annual rate. The bonuses the administration frequently touts seem both relatively small compared to overall compensation and in many cases unrelated to the tax law."

The corporate tax cut could eventually raise wages, but so far, the corporate tax cut appears to have gone to corporations."

And that seems to be the case for past corporate tax cuts on the state level as well. In a recent paper published by Harvard Business School, Ethan Rouen of Harvard and Suresh Nallareddy and Juan Carlos Suárez Serrato of Duke University explain it like this:

Rouen in an interview with the Fiscal Times: "We find tax cuts lead to higher reported capital income and a decrease in wage and salary income. These effects are concentrated among top earners, and we find no effects for those reporting less than $200,000 in income," the authors wrote.

In the long run, corporate tax cuts are supposed to help create more investment and higher wages for all workers, but the authors said there’s little evidence of that in their data. While tax cuts do boost investment, the resulting income gains are captured by business owners. “We have seen corporate profits rise and unemployment fall to historic lows, but wages have been stagnant. So far, there is no evidence that the tax cuts are changing this pattern,” Rouen told the Harvard Business Review earlier this month."

And in looking at the history of corporate tax cuts over time Rouen further notes: "Tax cuts significantly increase income inequality and are responsible, on average, for more than 10 percent of the meteoric growth in inequality in the last 20 years."

There are many factors which affect wage growth and the pay for middle class workers has been stagnant for decades, but it's increasing clear that Trumps' corporate tax cut hasn't made much difference. The New York Times has an excellent piece here explaining some of the reasons that wage growth has been flat while corporate profits have soared.

Photo Credit Alpha Stock Images


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