Why Progressives Can’t Understand How the Corporate Tax Cut is Fueling Our Booming Economy
George Orwell was correct: “Some ideas are so stupid that only intellectuals believe them.” The corollary, that some ideas are so obviously correct that only intellectuals disbelieve them, is equally true.
Consider these simple facts.
First, more Americans in 2018 are working than last year. In fact, as of the latest jobs report, American unemployment remains at just 3.7%, which is a 49-year-low.
Second, that larger percentage of working Americans are generally earning more income and enjoying stronger benefits today, given that “wages were 3.1% higher in September than they were a year ago,” the report shows -- the highest wage growth since 2009. Additionally, larger private employers, “in this environment… are more apt to provide competitive wages and strong benefits” to entice and retain talent, writes Dominic Rushe of The Guardian.
Finally, consider that most Americans are also withholding much less in taxes upon their wages this year than last, leaving more money in their pockets to save, or to spend on everyday goods and services. Roughly 90% of Americans saw bigger paychecks in 2018 than they did in 2017, and even left-of-left Politifact, unable to meaningfully obfuscate or refute the claim, rates that claim as “Mostly True.”
That’s all good for American workers. And this economy, by any measure, is booming.
Contrast this to the hyper-regulated economy over which Barack Obama presided, which could rightfully be described as the worst economic recovery in modern times. Obama famously told Americans that 2% growth was “the best we could hope for” in the last years of his presidency, and GDP growth was actually decelerating in his final year in office, from “2.3% in Q2, to 1.9% in Q3 to 1.8% in Q4 of 2016,” relates an Investor’s Business Daily editorial.
That simple fact firmly contradicts Obama’s 2018 campaign speeches claiming credit for this booming economy -- under Trump’s presidency and a GOP Congress, growth has averaged at 2.9%, and was 4.2% in Q2, and 3.8% in Q3 of 2018.
In short, the economy was clearly in decline by Obama’s last year in office. It was only when Trump took over with a Republican Congress in 2017 that the economy began our current boom.
It’s hard to imagine a downside to any of the aforementioned outcomes for Americans today. But the loudest and most prominent leftists imagine circumstances very different than all of that positive economic data signifies. Due to a persistent logical fallacy, maintained by blind faith alone, leading figures among the left are screaming from the ramparts that the Republican-led Tax Cuts and Jobs Act of 2017 should be a reason for Americans’ outrage. As Paul Krugman argues in a recent article at the New York Times:
Republicans lie about their agenda, pretending that their policies would help the middle and working classes when they would, in fact, do the opposite….
What Republicans stand for is cutting taxes on the rich and slashing social programs. Sure enough, last year they succeeded in ramming through huge tax cuts aimed mainly at corporations and the wealthy.
Paul Krugman as seen by Donkey Hotey
No data are introduced to support that claim. The reader is meant to blindly presume that the phantom downside of Americans enjoying an unemployment rate lower than at any time since 1969, having more money in their pockets due to smaller liability in federal taxation, and reaping the benefits of a booming economy (none of which is mentioned in Krugman’s piece, obviously) is that greedy American businesses also benefit from the tax cuts by having more money on their balance sheets. Therefore, the corporate tax cuts which help greedy and wealthy American businesses must come at the expense of American individuals.
Never does it occur to most opponents of the GOP tax cut that American individuals are largely doing better today than a year ago because American businesses are also doing better.
And it likewise never occurs to them that business owners do not pay the corporate tax, which was reduced from 35% to 21% in the GOP tax legislation, but that businesses merely tend to pass the costs of corporate taxation onward.
As famed economist Walter E. Williams elucidates, a “fact of the matter, which even leftist economists understand but might not publicly admit,” is that:
If a tax is levied on a corporation, and if the corporation hopes to survive, it will have one of three responses to that tax or some combination thereof. It will raise the price of its product, lower dividends or lay off workers. In each case a flesh-and-blood person is made worse off. The important point is that a corporation is a legal fiction and as such does not pay taxes. As it turns out, corporations are merely tax collectors for the government. [Emphasis added]
It's possible that Krugman doesn’t understand this simple truth, but it’s likelier that he understands it, but won’t “publicly admit” it, as Williams says, because he views corporations as “tax collectors for the government” which exist only to finance the government’s redistributive social programs.
That is a leftist moral argument, not a substantive or realistic economic one.
But here’s another enormous, though less obvious, benefit of the GOP’s slashing of corporate tax rates that Krugman wouldn’t want to (and doesn’t, for obvious reasons) talk about -- the massive repatriation of American companies’ capital and operations that had been kept overseas to avoid our previously uncompetitive 35% corporate tax (then among the highest in the developed world).
To put this in perspective, consider that $38 billion repatriated to the U.S. in Q1 of 2017. While that’s certainly not chump change, it is miniscule by comparison to the $300 billion that was repatriated in Q1 of 2018, after the Republican tax cuts.
But we were warned by the smartest of criers in the media, incessantly, that this simply wouldn’t happen. Politifact told us to “Beware the Hype” about repatriation of overseas profits promised by architects of the GOP tax bill. The Associated Press offered a “FACT CHECK,” saying that the idea that overseas profits might return after a corporate tax cut was a “mirage.”
Why? Because those assumptions were based upon one report, focused on one recent event.
The Jobs Creation Act of 2004 provided companies a one-time tax hit on repatriated capital at a rate of 5.25% rather than the then-standard 35%. There was a spike in repatriation of capital, but it didn’t have the desired effect, and certainly not the effect Republicans promised in 2017. “Those companies tended to buy back shares of their own stock, not to hire, or expand operations,” the Associated Press writes. Just as the 2004 corporate tax cut’s impact to the economy was “minimal,” says Mark Zandi of Moody’s Analytics, the benefit to the economy with the 2017 GOP tax cuts would also be “minimal,” as “repatriated cash would go to more stock repurchases, dividend increases, and paying for mergers and acquisitions.”
And yet, new data tells a different story. Americans companies had an estimated $2.6 trillion in cash parked overseas as of 2017. And $300 billion, or roughly 12.6%, came “flooding back in, boosting growth, jobs, and the economy.”
And that is mostly predicated upon one, simple difference between 2004 and 2017. In 2004, lowering corporate rates was a gimmick to repatriate business capital. In 2017, it was firm national policy, including a much lower corporate income tax rate, which would be beneficial to repatriating American businesses in the long-term.
Despite the left’s propensity to think of American businesses as soulless, greedy revenue factories which exist only to finance the benevolent federal government’s social programs, as Paul Krugman clearly seems to, American businesses know the difference between such a gimmick and the suggestion of a firm, ongoing national policy. As such, American businesses have repatriated overseas capital at unprecedented levels, have hired tremendously, and have “expanded operations” domestically. Private companies are now offering more competitive employee benefits to American workers, employees’ wages are growing at the fastest rate since the Great Recession, and unemployment is now the lowest it has been since the Vietnam War.
None of that is coincidence.
And I’m not sure which would be more aggravating about all of this for me -- that the left thinks that the booming economy and the Republican tax cuts might just be coincidental happenstance, or that the left might actually believe that any of these observations are somehow a bad thing for Americans, and that Trump and the GOP must be destroyed at all costs for having created this splendid outcome.