The Truth About Corporate Tax Cuts: How Trickle-Down Economics Fails American Workers

The Origins of Trickle-Down Economics

In 1974, a fateful meeting took place at the Hotel Washington in Washington D.C. Three men - Dick Cheney and Donald Rumsfeld, then advisers to President Gerald Ford, along with economist Arthur Laffer - gathered to discuss their opposition to Ford's proposed 5% tax increase on corporations and wealthy individuals.

At this meeting, Laffer sketched out what would become known as the "Laffer Curve" on a cloth napkin. This curve purported to show that at both 0% and 100% tax rates, government revenue would be zero. Laffer argued there was an optimal tax rate in between that would maximize revenue.

While initially dismissed, this idea gained traction through the efforts of economic journalist Jude Wanniski. He spent the next year writing articles promoting the concept that cutting taxes on corporations and the wealthy would benefit the entire economy.

The Reagan Era and Tax Cuts

In 1981, Ronald Reagan entered the White House and brought Laffer and fellow conservative economist Milton Friedman on as advisers. This set the stage for Reagan's signature economic policies.

Reagan made sweeping promises about how his tax plan would help working Americans:

"We must go forward with a tax relief package. I shall ask for a 10% reduction across the board in personal income tax rates for each of the next three years."

However, the reality of Reagan's tax cuts diverged significantly from the rhetoric:

• The tax rate for the highest earners was cut by 20%, from 70% to 50%
• The tax rate for the lowest earners was only cut by 3%
• Estate taxes on inheritances for the wealthy were lowered
• Capital gains taxes on investment earnings were reduced
• Corporate tax rates were cut

While Reagan never explicitly used the phrase "trickle-down economics," this was the core argument - that lowering taxes on corporations and the wealthy would boost the overall economy and therefore help working people.

The data shows this did not pan out as promised. A chart of wealth concentration reveals that the percentage of American wealth held by the top 10% of earners began to climb sharply after Reagan took office.

The Trump Tax Cuts

Fast forward to 2016, when Donald Trump campaigned heavily on promises of tax cuts:

"We're going to reduce your taxes. Big league, Big league."

In office, Trump passed the Tax Cuts and Jobs Act of 2017. Let's examine the actual impacts:

• The lowest income earners saved an average of just $40 per year
• The highest income earners saved an average of $50,000 per year
• The estate tax exemption was doubled, benefiting only about 3,300 extremely wealthy estates
• The corporate tax rate was slashed from 35% to 21%

Trump and his advisers insisted these corporate tax cuts would lead to higher wages for workers. His chief economic adviser at the time, Kevin Hassett, went on CNBC claiming:

"$4,000 to $9,000 per household is what's going to happen to wages... There's going to be a public debate about that. But there's nobody that's saying that it's zero."

The Real Impact of Corporate Tax Cuts

Now, several years later, we can evaluate the actual results of these tax cuts. Bharat Ramamurti, former deputy director of the National Economic Council, explains:

"Now that it's been seven years since that tax cut was passed in 2017, we have a lot of data about who actually benefited from it. And what we can see is that the typical worker, which is basically anybody making under about $150,000 a year, saw a $0 increase in their wages because of that tax cut."

Ramamurti continues: "At the end of the day, largely what you saw was that all of those tax savings for large corporations were sent back to shareholders in one form or the other. And because your typical shareholder tends to be quite wealthy - about half of the households in the United States don't own any shares, and the top 10% of households own about 85% of all shares - what that really was was a direct transfer from taxpayers to the wealthy."

The reality is even worse when accounting for corporate tax avoidance strategies:

• The Institute for Policy Studies examined 64 mega-corporations and found they paid an average effective tax rate of just 2.8% on $657 billion in profits
• 35 of these companies paid their top executives more than they paid in corporate taxes
• The Institute on Taxation and Economic Policy linked billions in tax savings for companies like Verizon, Comcast, Lockheed Martin and Walmart directly to the Trump tax bill
• Some corporations even received huge refunds, effectively paying negative taxes

Case Study: AT&T

AT&T serves as a prime example of how corporate tax cuts failed to benefit workers or consumers:

• The company strongly advocated for the Tax Cuts and Jobs Act
• After the bill passed, AT&T cut jobs, closed stores, and lowered wages
• Consumer phone bills did not decrease
• The CEO at the time, Randall Stephenson, left the company with a $64 million golden parachute

The Capital Gains Loophole

The Trump tax cuts also exacerbated issues with capital gains taxes. ProPublica reporters noticed CEOs with ownership stakes in their companies began paying themselves less in salary while company profits soared.

This was due to changes in the tax law that tripled the savings on profits quoted as capital gains rather than salary. This incentivized CEOs to focus on short-term stock price gains at the expense of workers and consumers.

Some of the biggest beneficiaries of this change, like the Uihlein family, were major Trump donors.

The Looming Expiration and Future Threats

Many of Trump's tax cuts are set to expire in 2025. However, if re-elected, Trump has proposed:

• Lowering the corporate tax rate even further to 15%
• Cutting taxes by $70,000 for individuals making over $3.6 million per year

Billionaires like Nelson Peltz, Steve Wynn, Elon Musk and Isaac Perlmutter have held private meetings with Trump, likely in support of these proposals.

Extending the Trump tax cuts would have severe consequences for the national debt. The Congressional Budget Office estimates it would add nearly $5 trillion to the federal deficit.

The True Cost of Trickle-Down Economics

The promise of trickle-down economics - that tax cuts for corporations and the wealthy will benefit all Americans - has proven to be a lie. Instead, these policies have:

1. Widened wealth inequality
2. Failed to deliver wage increases for average workers
3. Incentivized corporate practices that harm employees and consumers
4. Ballooned the national debt
5. Transferred wealth from taxpayers directly to the ultra-rich

As we approach the expiration of the Trump-era tax cuts, it's crucial for voters to understand the real impacts of these policies. The data clearly shows that trickle-down economics has failed to deliver on its promises, instead accelerating the concentration of wealth at the very top of the economic ladder.

The Path Forward

Addressing the failures of trickle-down economics will require a multi-faceted approach:

1. Progressive Taxation

Implementing a more progressive tax system that ensures corporations and the wealthy pay their fair share could help reduce wealth inequality and fund important social programs.

2. Closing Loopholes

Addressing tax loopholes, particularly those that allow for corporate tax avoidance and preferential treatment of capital gains, is essential for creating a more equitable tax system.

3. Investment in Workers

Rather than hoping for benefits to trickle down, policies could directly invest in workers through measures like education funding, job training programs, and infrastructure projects that create employment opportunities.

4. Strengthening Labor Protections

Enhancing workers' rights, including the right to unionize and negotiate for better wages and benefits, can help ensure that economic gains are more evenly distributed.

5. Consumer Protections

Stronger regulations to prevent price gouging and ensure fair business practices can help ensure that corporate profits don't come at the expense of consumers.

6. Campaign Finance Reform

Addressing the outsized influence of wealthy donors and corporations in politics is crucial for creating economic policies that benefit all Americans, not just the top earners.

Conclusion

The evidence is clear: trickle-down economics and corporate tax cuts have failed to deliver on their promises. Instead of broad-based prosperity, these policies have contributed to growing wealth inequality and stagnant wages for many Americans.

As we move forward, it's crucial to critically examine economic policies and their real-world impacts. By understanding the true effects of trickle-down economics, voters and policymakers can make more informed decisions about the future of American economic policy.

The goal should be an economy that works for all Americans, not just those at the top. This will require moving beyond the failed theories of the past and embracing policies that directly invest in workers, communities, and the long-term health of the economy.

By rejecting the false promises of trickle-down economics and embracing more equitable economic policies, we can work towards an America where prosperity is truly shared by all.

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