According to a new economic study, the Corporate Tax cut being proposed by President Donald Trump and congressional Republicans will provide a boost of between $4,000 and $9,000 a year in wages, the Washington Examiner is reporting. The study was published by Kevin Hassett, the newly-installed chairman of the Council of Economic Advisers. Democrats are, naturally, disputing this analysis, claiming that most of the benefit of lowering the lowering of the corporate tax rate from 35 percent to 20 percent would adhere to shareholders.

The relationship between corporate taxes and wages

According to Hassett’s paper, companies play tax avoidance games to channeling corporate profits through low tax countries, avoiding the hefty levies demanded by the United States.

Money that would have been invested in plant and equipment in the United States is parked overseas instead. The paper explains why wages have stagnated while corporate profits have soared.

Conversely, should the corporate tax rate be lowered, the advantage of parking profits offshore vanish and companies will start bringing money home. That money would be used to invest in the United States, not only to build plant and equipment but also to hire more workers. The inventive to outsource jobs, a widespread practice for corporations, will vanish.

Democrats dispute

Democrats, stuck as they are on the “tax cuts for the rich” mantra claim that any windfall incurred by a corporate Tax Cut would benefit shareholders.

The problem with that analysis is that many middle-class people are shareholders, particularly in their 401Ks and other retirement investments. If a lot of investors benefit with increased dividends, interest, and capital gains, middle-class income would still rise, perhaps by a more significant amount.

The bottom line

Whether the corporate tax cut increases income through wages or investment income, or, likely, a combination of both, the influx of money from overseas banks will provide an economic stimulus to the American economy.

When that incentive is combined with the middle-class tax cut and tax simplification that is also being proposed, the economic stimulus promises to be staggering.

The question that arises is how the politics of tax cutting plays out. Democrats are claiming, as they always do, that tax cuts of any kind will benefit the wealthy and explode the deficit.

Politico is reporting that deficit hawks in the Republican Party are being “stampeded” by the push to pass a tax reform package. Republican failure to pass an Obamacare repeal and replace package has made a tax package essential. While many would prefer to offset tax cuts with spending cuts, the imperative is to pass a tax reform measure regardless and rely on economic growth to do the rest.
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