Tax Cuts: Myth vs Reality
Tax Cuts: Myth vs Reality
The narrative on Tax Cuts is rarely challenged in the mainstream media. It’s repeated so often, you would be forgiven if you thought of it as fact. Here’s how it goes:
“Tax cuts stimulate the economy. They put money back into the pockets of working people, who in turn, spend that money on houses, cars, televisions and refrigerators. Corporations use the money they spend from tax cuts to hire more workers and pay them better. The growth generated by all this spending more than offsets the loss of revenue to the Federal government.”
It’s a nice story, and many people believe it. However, it’s completely false. There is over thirty years of economic data to prove that tax cuts doesn’t do any of the above. The economy can stall after a big tax cut, and the Federal deficit and National Debt balloon out of control. In exchange for a few extra dollars in their paycheck, working people suffer when taxes are cut.
Let’s break down where this story goes off the track, starting with the “money back into the pockets of working people” part. I get paid twice a week at my day job. On my last check, I paid $191.26 in taxes to the Federal Government. If the Republicans in Congress gave me a 20% tax break (and, no one is suggesting a cut that steep for middle class workers), that would be an extra $38.25 in my paycheck.
$38.25 would fill the tank of my Subaru Impreza. If I drank coffee, that money would buy me a few cups. It might be enough to pay for a dinner out with my wife. Most likely, the tax cut that does come down (if it comes down at all) would be more like 5-10%, which would be even less.
What would help me and my family far more would be a cut in my health insurance premiums. That would free up a significant amount of money for new purchases. But, that won’t happen with this Congress.
What about corporate taxes? If companies had more money, wouldn’t they hire more people and pay them better? Well, if you follow the business news, you know that corporations are already flush with cash. It’s estimated that Apple has $128 billion stashed in offshore tax havens, and they are hardly an isolated case. That money isn’t going to salaries. It’s not even going to research and development. It’s just sitting there.
Corporations have spent billions in recent years buying back stock. They do this to decrease the number of shareholders and prop up their earnings per share ratio. In 2016, Disney spent $7.6 billion buying back 73.8 million shares. From 2004-2014, Chevron spent $45 billion on share repurchases. This is money that went to shareholders rather than employees in the form of salaries and benefits.
Corporations already have more money than they know what to do with. Unless Congress is going to put provisions in the law, stating that tax savings must go to salaries of front line workers, a tax cut to big business will do nothing to help the economy.
Our country, with $20 trillion in debt, shouldn’t be cutting anybody’s taxes. What we need is actually the opposite. We need to raise taxes. Raise corporate taxes, close down the offshore accounts, increase taxes on billionaires. Invest that money in infrastructure, teachers, nurses, police and firefighters. Those salaries will drive the economic boom we have been waiting for.
The narrative on Tax Cuts is rarely challenged in the mainstream media. It’s repeated so often, you would be forgiven if you thought of it as fact. Here’s how it goes:
“Tax cuts stimulate the economy. They put money back into the pockets of working people, who in turn, spend that money on houses, cars, televisions and refrigerators. Corporations use the money they spend from tax cuts to hire more workers and pay them better. The growth generated by all this spending more than offsets the loss of revenue to the Federal government.”
It’s a nice story, and many people believe it. However, it’s completely false. There is over thirty years of economic data to prove that tax cuts doesn’t do any of the above. The economy can stall after a big tax cut, and the Federal deficit and National Debt balloon out of control. In exchange for a few extra dollars in their paycheck, working people suffer when taxes are cut.
Let’s break down where this story goes off the track, starting with the “money back into the pockets of working people” part. I get paid twice a week at my day job. On my last check, I paid $191.26 in taxes to the Federal Government. If the Republicans in Congress gave me a 20% tax break (and, no one is suggesting a cut that steep for middle class workers), that would be an extra $38.25 in my paycheck.
$38.25 would fill the tank of my Subaru Impreza. If I drank coffee, that money would buy me a few cups. It might be enough to pay for a dinner out with my wife. Most likely, the tax cut that does come down (if it comes down at all) would be more like 5-10%, which would be even less.
What would help me and my family far more would be a cut in my health insurance premiums. That would free up a significant amount of money for new purchases. But, that won’t happen with this Congress.
What about corporate taxes? If companies had more money, wouldn’t they hire more people and pay them better? Well, if you follow the business news, you know that corporations are already flush with cash. It’s estimated that Apple has $128 billion stashed in offshore tax havens, and they are hardly an isolated case. That money isn’t going to salaries. It’s not even going to research and development. It’s just sitting there.
Corporations have spent billions in recent years buying back stock. They do this to decrease the number of shareholders and prop up their earnings per share ratio. In 2016, Disney spent $7.6 billion buying back 73.8 million shares. From 2004-2014, Chevron spent $45 billion on share repurchases. This is money that went to shareholders rather than employees in the form of salaries and benefits.
Corporations already have more money than they know what to do with. Unless Congress is going to put provisions in the law, stating that tax savings must go to salaries of front line workers, a tax cut to big business will do nothing to help the economy.
Our country, with $20 trillion in debt, shouldn’t be cutting anybody’s taxes. What we need is actually the opposite. We need to raise taxes. Raise corporate taxes, close down the offshore accounts, increase taxes on billionaires. Invest that money in infrastructure, teachers, nurses, police and firefighters. Those salaries will drive the economic boom we have been waiting for.
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