The White House Council of Economic Advisers promises that the corporate tax cut, to 20 percent from 35 percent, would lead to more hiring and increase the average household income by at least $4,000 a year.
But that calculation depends on an assumption that workers would get a much bigger share of the corporate tax savings than most economic studies have shown, including studies by the US Treasury Department and Congressional Budget Office.
Most economists agree that the Republican tax plan will boost business investments, but said it’s unrealistic to expect the kind of investment windfall that proponents of the tax plan argue will prompt employers to raise wages.
Steven Rosenthal, a senior fellow at the nonpartisan Tax Policy Center, calculates it would be more like 10 to 20 years before the average household could get the $4,000 to $9,000 annual boost in income that the White House study estimates.
“It’s foolishness, complete foolishness,” Rosenthal said.
One of the key drivers of investment is access to money, which hasn’t been a problem for most businesses. Large companies, in particular, already have trillions of dollars in cash reserves. At the same time, after-tax corporate profits are at a historically high level as a share of the economy.
The majority of economic research suggests that most of the benefits of corporate tax cuts end up flowing to shareholders through stock buybacks or increased dividends and not to increasing the pay of ordinary workers.
“It’s a fantastically poorly targeted way of delivering a middle-class tax cut,” said Edward Kleinbard, a USC professor and former chief of staff to Congress’ Joint Committee on Taxation.
The broad-based US tax cuts proposed by Trump in September would mostly benefit the very wealthy while lowering government revenues by $2.4 trillion over 10 years, according to an analysis the Tax Policy Center.
Successive rounds of federal tax cuts have eroded America’s progressive taxation and helped increase the massive wealth inequality in the US, according to research by the economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California at Berkeley.