Who benefits from Trump's tax plan?
Organizations backing Trump's plan argue that cutting corporate rates will boost US growth, but the tax cuts haven't spurred growth for 20 years.
If there was still any doubt that President Donald Trump is a supporter of trickle-down economics theory rather than a populist, just consider his new tax plan.
It would represent the largest set of cuts since the time of George W. Bush. The Business Roundtable and other executive organizations supporting Trump's plan rightly argue that US corporate fees are much higher than the average for the wealthy OECD group of countries, and that the US desperately needs a simpler and more tax code. more streamlined to avoid cross-border loss of assets.
They also argue that cutting corporate rates will dramatically increase US growth, bring back jobs, and raise wages. That is more difficult to believe. On the one hand, tax cuts have not stimulated sustained growth for 20 years. Yes, there were tax cuts and growth during the Reagan era.
There was also increased productivity growth, a massive entry of women into the workforce, and a federal debt burden of 20 percent of Gross Domestic Product.
Currently, debt is 77 percent of GDP, productivity is stagnant, and not only have the great benefits of female entry into the workforce been reaped, but birth rates are lower, and the President it is doing everything it can to limit immigration. Growth equals productivity plus demographics. There is nothing else to do, unless something in that equation changes.
Moving assets to places with lower taxes is one thing. Creating real economic growth is another. Business leaders sometimes confuse the two. Perhaps some of them believe that one leads to the other. But if you look at the economic outlook, you will see that there is an abundance of money. Trading, asset values and corporate debt are at historically high levels. The money is there. Jobs don't.
I would say this is because there is not enough consumer demand. As an emerging markets chief executive recently put it, who has "given up hope" on growth in the US, as most of the demand comes from abroad.
In an economy where consumer spending accounts for roughly 70 percent of GDP, it is a problem when it is not maintained at the necessary level. Average Americans haven't had a real pay increase since the early 1990s.
Corporate leaders will say: lower taxes, we are going to bring back the 2.6 trillion dollars that is abroad at low costs so we can create jobs and demand. I wish I could believe that. But that would mean ignoring the historical evidence that repatriation tends to be channeled to shareholders rather than workers.
Although many business leaders want to believe that creating growth is as simple as reducing corporate taxes, there is a much deeper question at stake on the private sector side: who runs companies and how they run.
A document published by the leftist Institute for New Economic Thinking argues that our framework for corporate governance is flawed. US companies and, to a lesser extent, British companies, are run according to the "agency theory," which holds that shareholders drive corporate performance and economic growth with their investments.
The idea is that this is a virtuous and productive circle in which capital is allocated wisely and fairly. It is the argument that corporate "activists" use to justify themselves as creative destroyers and rebuilders of value, rather than lurking barbarians.
But any uptick in the performance of the companies that were subjected to this method can easily be explained both by increased profits through cost reduction and layoffs and by improvements in corporate performance.
Meanwhile, there is a growing imbalance between those who create value in the economy - executives and investors, as well as workers and taxpayers through their investments in, for example, education and basic infrastructure - and those who can extract it, mainly shareholders. , who have received historical payments in the past through share buybacks and dividends.
20 percent of the population owns 80 percent of the securities; there is a limit to the number of houses, cars, and pairs of jeans they can buy.
Sure, we can reduce taxes. But this will not change the fact that we have a private sector market system that no longer serves the real economy.
Business leaders who care about long-term growth and competitiveness need to think seriously about correcting those things, and stop deluding themselves that a trickle-down tax plan is the answer.
