Why The Corporate Tax Cuts Won't Help American Workers

The biggest lie Republicans tell about their tax reform plan is that it will help American workers (because corporations will raise worker wages and create new jobs). That has never been true of tax cuts in the past, and it is not true of the proposed massive corporate tax cut being considered. While the rich will benefit (both American and foreign investors), the workers will not.

Former Labor Secretary Robert Reich (pictured) explains why this is true:

Trump and congressional Republicans are engineering the largest corporate tax cut in history in order “to restore our competitive edge,” as Trump says.

Our competitive edge? Who’s us? 

Most American corporations – especially big ones that would get most of the planned corporate tax cuts – have no particular allegiance to America. Their only allegiance is to their shareholders. 

So restoring their “competitive edge” has little or nothing to do with helping American workers. 

For years they’ve been cutting the jobs and wages of American workers in order to generate larger profits and higher share prices. 

Some of these jobs have gone abroad or been outsourced to lower-paid contractors in America. Others have been automated. Most of the remaining jobs pay no more than they did four decades ago, adjusted for inflation. 

When GM went public again in 2010 after being bailed out by American taxpayers, it boasted of making 43 percent of its cars in places where labor is less than $15 an hour – often outside the United States. And it got its American unions to agree that new hires would be paid half the wages and benefits of its old workers. 

Capital is global. Big American corporations are “American” only because they’re headquartered and legally incorporated in the United States. But they could (and sometimes do) leave at a moment’s notice. They employ or contract with workers all over the world. 

And they’re owned by shareholders all over the world.  

According to research by the Tax Policy Center’s Steven Rosenthal, about 35 percent of stock in U.S. corporations is now held by foreign investors. 

So when taxes of “American” corporations are cut – as the Trump-Republican tax bill seeks to do – foreign investors get a windfall. 

The Institute on Taxation and Economic Policy estimates that the Senate majority’s tax bill would give foreign investors a tax cut of $31 billion in 2019. The House bill would give them $50.4 billion. 

That’s money that foreign investors would otherwise be paying into the U.S. Treasury. 

By way of comparison, the combined tax cuts for families in the bottom 80 percent of the income distribution in the 30 states won by President Donald Trump comes to just $39.4 billion. That’s far less than the House bill gives away to foreign investors. 

I’m not blaming American corporations. They’re in business to make profits and maximize their share prices, not to serve America.

I’m blaming politicians like Trump and the Republicans who are trying to persuade Americans that tax cuts on American corporations will be good for Americans. 

It’s different for many corporations headquartered in Europe or Canada. Big corporations headquartered there are far more responsible for the well-being of the people living in those nations. That’s mainly because labor unions there are typically stronger there than they are here – able to exert pressure both at the company level and nationally.

As a result, American corporations distribute a smaller share of their earnings to their workers than do European or Canadian-based corporations. And top American executives make far more money than their counterparts in other wealthy countries.

Governments in other rich nations often devise laws through bargains involving big corporations and organized labor. This process further binds their corporations to their nations.

But in America, lawmakers respond almost exclusively to the demands of big corporations and of wealthy individuals (typically corporate executives and Wall Street moguls) with the most lobbying prowess and deepest pockets to bankroll campaigns. Meanwhile, unions are weak here, and “the preferences of the average American appear to have only a miniscule, near-zero, statistically non-significant impact upon public policy,” according to researchers.

Which is one reason why most Europeans and Canadians receive essentially free health care, generous unemployment benefits, paid medical leave, and  an average of five weeks paid vacation.  

So it shouldn’t be surprising that even though U.S. economy is doing well by most measures, and American-based corporations are overflowing with profits, the benefits are not trickling down to most Americans.

Given the dominance of American corporations on American politics, combined with their singular concern for share prices rather than the well-being of Americans, it’s folly to think they’ll turn tax cuts into good American jobs. 

The tax bills big corporations are pushing through Congress are designed for one thing: to boost their share prices, not to boost the vast majority of Americans.