Economic Policy Institute | October 25, 2017
WASHINGTON – In a new paper, EPI Research Director Josh Bivens provides evidence that corporate tax cuts (like those included in the recent “Unified Framework” Republican tax plan) will not boost American wages, and demonstrates that claims to the contrary are based on faulty theory and evidence. Bivens looks specifically at a recent report released by the Trump administration’s Council of Economic Advisers, which claims that their proposed tax cuts for large corporations will somehow trickle down to help American workers by boosting economy-wide productivity and wage growth, giving households an income increase of at least $4,000.
“The evidence is clear that lower corporate tax rates have not led to productivity-enhancing investments. Further, even if they did, productivity gains have largely not shown up in workers’ paychecks in recent decades,” said Bivens. “The Trump administration’s claims that large wage gains for workers will result from cutting corporations’ taxes is not supported by the professional research consensus on this issue, and have no serious backing in the data.”
Bivens argues the claim that cutting corporate taxes will boost wages is false because:
- At the broadest level, there is no evidence linking corporate taxes and productivity or wage growth. Since World War II, productivity and wage growth in the U.S. economy were actually significantly faster in periods with higher corporate tax rates.
- A key reason for this lack of correlation between corporate tax rates, wages and productivity is the weak link between post-tax profit rates (which are boosted by tax cuts) and productivity-enhancing investment in the U.S. economy.
- In recent decades, even the link between economy-wide productivity growth and wage growth for the vast majority of American workers has been almost entirely severed. Thus, even if cutting corporate taxes did boost productivity, this would not be enough to boost typical workers’ wages—productivity growth is a necessary, not a sufficient, condition for wage growth.
- The real key to boosting wage-growth for the American workers is shifting economic leverage and bargaining power away from capital owners and corporate managers to typical workers. Yet the Trump administration has consistently done the opposite.
EPI has highlighted a number of policies that would raise wages, and cutting corporate taxes is not one of them. If policymakers wanted to raise pay for working people, they could implement policies like raising the federal minimum wage, strengthening protections against wage theft, strengthening workers’ abilities to join unions, and urging the Federal Reserve to pursue genuine full employment.
The Economic Policy Institute, a nonprofit Washington D.C. think tank, was created in 1986 to broaden the discussion about economic policy to include the interests of low- and middle-income workers. Today, with global competition expanding, wage inequality rising, and the methods and nature of work changing in fundamental ways, it is as crucial as ever that people who work for a living have a voice in the economic discourse.