By Paul and Emily Olsen
Since the 1980s, Republican politicians have been selling the narrative that tax cuts for the rich will stimulate the economy. They claim large corporate owners will apply funds saved from the reduced taxes towards raising the salaries of their current employees and hiring new employees. This claim completely ignores how real companies operate.
Unfortunately, the record shows that large corporations are more likely to invest such funds in the stock market, usually in risky stocks on derivative markets, such as futures, options, swaps and shorts. In fact, the stock market collapse of 2008, although preceded by a shortfall in the real estate market (a.k.a., the subprime housing bubble), was actually triggered by banks and brokerage firms investing their clients’ funds towards short-term, high-risk derivative investments. These banks were trying to quickly make up for the losses they were making in the real estate bubble but ended up losing even more massively than their initial losses. If you are up for it, we recommend taking a Friday night to watch The Big Short after the kids go to bed. It is hilariously cynical and may be more palatable with a beer in hand.
Corporations don’t hire people out of the goodness of their hearts. They don’t create jobs for the sake of creating jobs; they create jobs to meet demand for their product. Unfortunately, giving tax cuts to businesses does nothing to increase their product demand. The primary goal of corporations is to maximize profit, and you’re not maximizing profit when you’re hiring people you don’t need. You’re not maximizing profits by paying one’s employees more than absolutely necessary. They will hire more people when they need to in order to produce more product to sell.
Corporations want to hire as few people as possible, yet Republicans would have us believe that businesses can’t wait to hire more people and are only restrained from doing so because of the high taxes they are required to pay. It is rare for a company to do more than a cost-of-living raise unless they are being pressured by exterior forces, such as unions, a competitor paying higher wages or government regulation.
When the wealthy and large corporations are given a tax cut they also spend it on distributions to the shareholders. 80% of the Trump tax cut of 2017 went to companies buying back their own stock, which artificially inflated the company’s stock price, and unfortunately, created an economic bubble. And why do you think we had 12 recessions in the 20th Century
They spend it on corporate acquisitions, mergers and hostile takeovers, which destroy jobs, never mind that they decrease competition, which is the very thing that makes capitalist societies function well in the first place. And, of course, they spend it on more political campaign contributions so they can buy another tax cut in a few years.
The truth is that business expenses – wages, raw materials, maintenance, etc. – are tax deductible. That means that companies already pay zero income tax on revenue that is used to pay employees. If they have to pay higher taxes, they would be more inclined to infuse company earnings into wages. Unfortunately, a tax cut actually causes the reverse effect: businesses are less penalized to invest funds and therefore less incentivized to increase their spending on employee wages.
When the corporate tax rate is really high, the owners’ choice is to spend the money on their company or pay it to the government. Tough call, right? When the tax rate is low, the owners’ choice is to spend the money on the company or keep it all themselves. Again, tough call. Republicans keep telling us that tax cuts for the wealthy will create so much economic growth that they will pay for themselves. This is another lie. Even George H.W. Bush called it “voodoo economics.”
Republicans are already trying to raid Social Security and Medicare funds to fill the $1.5 trillion hole they made in the federal budget with the 2017 tax cut. Conservatives say taxation is “stealing,” yet here they are taking money from a source we have all contributed to our entire lives and “redistributing” it to the super rich.
After whining endlessly about federal debt when Democrats are in power, one of the first things Republicans do when they’re in charge is massively inflate the federal deficit. Somehow, in some way, the middle class will end up having to fill the hole. Whether its losses of government jobs, losses of government benefits or straight up higher taxes, the general population ends up with less. As the middle and working classes have less, they buy less. Sales go down. And what does any company do when sales of its products go down? Do they hire more people? No, they lay people off.
What really boosts an economy is what we saw during the pandemic with the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Working-class people, and especially working-class parents, as well as small businesses, got checks from the government in 2020 and 2021 to assist them with the economic changes we experienced when we were required to stay home. The pandemic contracted a record of 31.2% in the second quarter of 2020, but the CARES Act rebounded the economy 33.8% in the third quarter.
We may still face a recession as a result of the supply-chain shortage caused by the pandemic, as well as getting hit by increased fuel costs as a result of the war in Ukraine, but it will be not as bad as it could have been without the government cash infusion in 2020 and 2021.
When a greater percentage of the wealth is in the hands of the general population, they have more disposable, or discretionary, income. They spend more money as consumers, which infuses money into businesses. We buy the stuff that companies produce. It is the increased sales that creates more jobs because the company doesn’t want to miss out on an economic opportunity. Families also use the extra funds to pay off debts and put money into savings accounts so that they are more resilient, which also helps our macro-economy.
Conservatives insist that they hate wealth redistribution, as they consider it “socialism,” but the Republican tax plan is nothing but a massive redistribution of wealth to the top. In capitalist societies, wealth naturally accumulates into the hands of a few. It’s commonly called “getting rich.” and while there is nothing wrong with getting rich, society does reach a point where so much is held by so few and most have so little, that the economy stalls.
When consumers have fewer funds, they are more likely to go into debt just to sustain themselves. Higher levels of debt among the general population lead to increased default on debts. We definitely don’t want the government helping that process along.
The whole process of accumulating wealth is in complete opposition to trickle-down economics, where it’s claimed that business owners will simply spend more on their workers just because the owners have more money.
Many conservatives scream at the top of their lungs, “Why should I have to supplement the poor and the sick?” “People should pull themselves up by the bootstraps!” And yet these same people insist business owners will be generous with their wealth. While the right-wing is busy fear-mongering about socialism, the GOP has us on a fast track back to dark-age feudalism – where a tiny minority has all the wealth and the masses toil till their death and are perpetually in debt to the people who own the land.
Republican politicians constantly paint the ridiculous picture that the only two options are absolute socialist economic equality and their own position of “give every last dime to the top one percent.” They need to demonize everyone but themselves as “socialist” to hide the fact that their own economic policies have repeatedly proven disastrous. They don’t want you to even be aware that if those who earn more than $10 million a year are taxed at 75%, the person with that income is still pocketing millions each year. They also want to hide the fact that the tax system is bracketed, so the guy in the example is paying lower rates on the first few million, and only paying the high rates on the top most part of their income.
The right-wing has worked endlessly to spread the idea that the only two options are socialism and Republicans. They want you to be completely in the dark that there is an enormous difference between socialist nations like the former Soviet Union and capitalist nations with taxes, regulations and social programs like every nation in the free world, including this one. Anyone who can’t tell the difference between the USSR and the UK has no business lecturing anyone on economic policy. Hybrid economic models with some capitalist features and some regulations function better for the greater good than straight capitalist or straight regulatory models. Do the research; government regulations are a necessary part of a healthy democracy.
Trickle-down economics has been defended with the analogy of feeding a horse. When the horse has plenty to eat, the birds eat as well. But actually, the horse will eat about the same even if it has plenty to eat. It will eventually get full and decide not to eat for a while, but a CEO’s bank account never gets full, and he doesn’t wish to share his extra earnings with any of us
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