The myth: Lower corporate taxes will encourage companies to pay workers more.
However, they will have to pay much, much more to make up for the hit that middle and lower income people are about to take, according to economists.
While many people may see a small increase in take home pay due to the new Republican tax plan, the net results will be far worse, because now deductions that these people have relied upon, are gone.
Hit especially hard are students, who can no longer deduct interest on student loans, and have to count discounted tuition and grants as income.
This is especially egregious. Think about it. A tax cut that everyone agrees is primarily for the benefit of the ultra wealthy and corporations, is being paid for by increasing taxes and burdens on students.
Is this really the America we want?
Many economists, including the government’s own nonpartisan scorekeepers, dispute the notion that workers will get much of the gains from corporate tax reform. They argue that shareholders, not workers, stand to benefit the most. Recent history suggests the same, with the wealthy the primary beneficiaries of soaring corporate earnings and a booming market.
So, if corporations are about to start saving a lot of money, and most of it is not going to workers, where is it going? Most will go to shareholders, whether people with retirement accounts, rich investors, or corporate executives compensated with equity, economists think. Numerous companies—three dozen of them and counting—have announced that they will buy back shares with the additional funds. Home Depot is planning to spend $15 billion on buybacks, Oracle $12 billion, and Pfizer $10 billion. All in all, 15 companies have said they each plan to spend more than $1 billion on buybacks, and many have also announced plans to boost their dividends.
Buybacks reduce the number of shares a company has in circulation, pushing up the price of the ones that remain on the market and making shareholders richer. The reason this primarily benefits the well-off is that lower-income and middle-income families do not tend to have many equity investments, if any at all.
The New York University economist Edward Wolff has estimated that the top 1 percent of households in terms of wealth owned 40 percent of all stocks in 2016, and the top 20 percent of households owned 93 percent. The fact that these households gain so much from a rising stock market is part of the reason that wealth inequality has increased so sharply.
That’s how this tax plan helps the rich get richer, while the lower and middle class are harmed.