The real reason the Republican tax cut isn’t going to work
Why are businesses investing so little when profits are so high?
That's been one of the most important economic questions of the past few years, but, as New York's Jonathan Chait points out, it's one that President Trump's top advisers seem completely unaware of, despite — or is it because of? — the fact that it could completely undermine their biggest accomplishment so far.
Now, the important thing to understand here is that profits are supposed to be like a bat-signal showing businesses where to invest. When they're high, it usually means that there's so little supply of what consumers demand that companies can charge almost anything for it. Other firms, then, should be able to swoop in and compete away some of these profits while still making enough themselves for their upfront costs — the investments they have to make — to be more than worth it. That's what's supposed to be the magic of the market: Just by having everyone pursue their own self-interest, we can figure out how much of everything we need better than any bureaucrat could.
But this process has lost some of its mojo recently. Corporate profits, adjusted for taxes, inventories, and depreciation, have hit an all-time high as a share of the economy the past 10 years, but business investment has not. Nowhere close. It has been average at best.
So what in the name of Adam Smith is going on? Economists aren't entirely sure, but one explanation that makes a lot of sense, and has quite a bit of evidence to support it, is that monopolies are choking off growth. Indeed, corporate markups have increased from an average of 18 percent in 1980 to 67 percent today, with a significant part of that being due to new winner-take-all markets and, yes, mergers and acquisitions, which perhaps shouldn't be too surprising when every sector of the economy has gotten more concentrated during this time. Big profits, then, might not be a sign that there's a big opportunity for others to try to take advantage of so much as that there's none at all. Companies, in other words, might be making so much money not because they've discovered a big, new market, but rather because they've cornered an old one. But that's not a reason for anyone to invest money in it, least of all the monopolist.
Which brings us to the Trump tax cuts. The entire rationale for them is that slashing corporate taxes will increase profitability enough that businesses will increase their investment, which, by making workers more productive, will eventually increase wages as well. But what if bigger profits won't make a company put any more money back into its business, because it's a monopoly that doesn't need or want to expand? Won't a corporate tax cut then just be shoveling money into the pockets of shareholders with no other economic benefits? Well, yes. That's something that Paul Krugman, for example, has been warning about since well before this bill became a hastily drafted law.
And now the Trump team finally has an answer to this: Pretend it can't be a problem. “Opponents, echoing leftists from Marx to Piketty,” Council of Economic Advisers Chair Kevin Hassett wrote, “describe” the Trump tax cuts “as a giveaway to the wealthy at the expense of the working class” when that couldn't possibly be true because “a dynamic, competitive economy” means that “the relationship between companies and employees is symbiotic” and “not antagonistic.” Never mind that there are serious questions about just how dynamic and competitive our economy really is. Hassett is sure that “when profits go up, capital investment goes up, and wages follow” even though that hasn't been the case for a decade now.
Translation: This will work if you assume it will, and pay no attention to all the reasons it might not.
If this sounds like the kind of Panglossian analysis you'd expect from, say, one of the authors of “Dow 36,000,” well, that's because it is. But it's not as if other Republicans are any more realistic about this than Hassett is.
They've all spent the past 38 years proclaiming that tax cuts for the rich work in theory, and ignoring all the evidence that they don't in practice. Things like the fact that the economy didn't implode like they said it would after Bill Clinton raised taxes, or take off like they predicted when George W. Bush cut them, or collapse like they once again insisted after Barack Obama hiked them, or set off a boom like they were sure it would when Kansas slashed them, or send California into its own private depression when it increased them, or . . . I think you get the idea.
Being a Republican means remembering to forget that tax cuts for the rich hardly ever work. They are always going back to the future that is the 1980s.
Where they're going, they don't need facts.
Original article by Matt O'Brien , in Wonkblog .
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... and the Unthinking Faithful TM continue to applaud... https://thenewstalkers.com/data/media/0/0/jrSmiley_74_smiley_image.gif','I don't know');">
What are those tax cuts for the rich? Can you list them?
I'm not going to waste my time trying to educate someone who doesn't want to be educated.
So you have nothing...Got it.
Read the seed.
Great article. Council of Economic Advisers Chair Kevin Hassett was a guest on one of the cable news shows this morning and he said the same thing he is quoted as saying in this article "all is well" . More capital is coming into the system and that will cause greater productivity and justify higher wages, or so this line of baloney goes. There have been plenty of times of high worker productivity in the past 30 years that havent resulted in higher wages.
More bs from the economic elites who rob the working man blind.
Wrong as usual JR. Explain why it's not going to work...since you claim to be an expert.
Read the seeded article. I agree with it.
Of course you do. If it said that the tax cuts are going amazingly above what was expected, you would be screeching it is a deflection by Trump from the Russia "investigation".
It doesn't. End of that derail.
The amazing thing is the lengths to which the Unthinking Faithful TM will go. They'll even pretend not to know about tax cuts for the rich!
Oh, wait... maybe Fox has still not explained ... and since the Unthinking Faithful TM have no other source of information...
Businesses are not going to expand their operations or hire more employees no matter how much money they have unless the demand is there. It really is that simple, you can cut their taxes to zero, but unless there is increased demand for their service or product, they will simply distribute all that cash to their share holders.
Yes.
And since very little of current creation of wealth goes into the pockets of ordinary consumers, they cannot "demand"...
Author called off topic {SP}
as New York's Jonathan Chait points out,
a blogger, using a blog that links to another bloggers opinion as if that somehow makes it all credible.
just more opinion based BS
too funny
The tax cuts aren't supposed to work. The extras some are allegedly getting in their paychecks are going to be eaten up by higher prices and higher state and local taxes. Lower and middle class taxpayers will definitely not come out ahead. The upper tiers will do just fine.