aside Many Executives Admitted That They Would Not Invest In Their Businesses With Tax Cut Savings

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GARY COHN (R)

Gary Cohn is the top economic adviser for the republican President Donald J. Trump who is also the major architect of the president’s tax cut proposals.

Mr. Cohn has been marketing the republicans’ tax cut plan as a brilliant roll out which benefits mostly corporations and the wealthy with the concept that these beneficiaries will invest in their businesses, add jobs and increase workers’ salaries. Unfortunately, Mr. Cohn’s view through rosy glasses of how the tax cuts will translate into more jobs and an increase in wages has nothing to do with the real world.

For the past decade, corporations have incurred record revenues, profits and the decision makers have been hording piles of cash which they have not used to invest in their infrastructures, add more jobs or heaven forbid, share their spoils due to increased productivity, etc. with their front-line employees in the form of an increase in salaries and bonuses. Instead most workers have been burdened with stagnant wages for over 2 decades.

Editorial cartoon on wages

As per a 7/19/17 Forbes report by Tim Worstall, “There are interesting and useful things we can worry about in corporate America but that there’s a cash pile of $1.84 trillion out there, as reported by Moody’s, isn’t one of them. We can indeed think a little about why they’re hoarding cash, how we might change the tax system to lessen their propensity to do so perhaps, but in the larger terms of the macro-economy this just isn’t a problem at all.”

The big question is, how is giving more monies in the form of tax savings to corporations flush with cash, going to alter the behaviors of the brass running big business entities?

Recently, Mr. Cohn had a chance to ask a group of high level business executives, a very similar question where only a few raised their hands, indicating that they would use the tax savings to invest in their businesses. Many didn’t.

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Here is the rest of the story….

On November 14, 2017, Bob Bryan of Business Insider penned the following report, “Gary Cohn had an awkward moment when CEOs appeared to shoot down one of the biggest arguments for the GOP tax plan.”

Excerpts:

  • “The Trump administration has argued that the proposed GOP tax cuts will lead to a boom in private investment.”
  • “During an event with the top White House economic adviser, Gary Cohn, CEOs were asked whether they would increase investment if the GOP’s tax overhaul passed.
  • Few did, prompting Cohn to ask, “Why aren’t the other hands up?”

“A group of CEOs on Tuesday (11/14/17) appeared to cast doubt on one of the White House’s biggest arguments for overhauling the tax code — right in front of the economic adviser Gary Cohn.”

“At a meeting of The Wall Street Journal’s CEO Council, an interview with Cohn — the National Economic Council director who previously worked as an executive at Goldman Sachs — prompted discussion about the amount of investment the GOP tax bill, the Tax Cuts and Jobs Act, would generate.”

“Republicans and the Trump administration have argued that tax cuts for businesses would lead companies to investment more and raise wages for workers.”

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“The moderator then asked those in attendance whether they were planning to increase their business investment if the tax bill became law. The CEOs in attendance did not seem to be on the same wavelength as Cohn.”

“While there was a smattering of raised hands in the auditorium, it was clearly not as many as Cohn would have liked.”

“Why aren’t the other hands up?” Cohn asked before moving on to another question.”

“Democrats and other critics of the tax bill have said that the Trump administration grossly overstates the potential economic boost from the cuts and that actual increase in investment would not be as substantial as predicted.”

The source for the below graphs: 5/23/16 VOX report, “This cartoon explains how the rich got rich and the poor got poor,” by Alvin Chang.

“And let’s say the dollar bills below represent all the income in America:”

“In 1967, this is how that $100 was split up:’

“Things stayed about the same for the next decade and a half.”

“Then in 1981, before Ronald Reagan became president, the wealthy began to get wealthier while the poor got poorer.”

“By the time Reagan left office in 1989, this is how that $100 was split up”

“Notice how everyone but the richest has a smaller portion of the money.”

And that trend continued

“Here’s what it looked like in 2014, six years into President Barack Obama’s term:”

“In short, we’ve seen quite an increase in income inequality since the late-1970s.”

“There are many reasons economists believe wealth inequality is a bad thing”

“One reasons is it means everyone doesn’t share America’s economic growth. Another reason is that it prohibits social mobility — and it turns out social mobility in the US might be worse than once thought.”

“One metaphor often used is that when the rungs of a ladder get further apart, it’s harder to climb.”

“But perhaps the best argument against income inequality, though, is that it’s a threat to democracy. If a few people control most of the money, then they can control political outcomes.”

“But how did this happen?”

“We need to go back in time, starting with the 1930s, to really understand.”

“So here we are in the 1930s. This is when we start seeing a strengthening of labor unions, a federal minimum wage, the establishment of Social Security and unemployment insurance, and increased taxes on the wealthy and corporations. Economist Paul Krugman calls this phenomenon “The Great Compression” because these policies created a lot more parity — and held inequality at bay for about 40 years.”

“You can see that in this graph. It shows that, from the 1940s through the mid-1980s, the richest one person got a much smaller portion of the whole:”

“That lasted until the late-1970s — and you saw what happened from then on. It’s what economists call “The Great Divergence,” or a great increase in wealth inequality.”

“So, what caused this?”

“Wealthy people began making more of their money from investments and business income”

“Everyone else continued to make money on salaries and wages. Even from 1996 to 2006, things changed drastically:”

But since the 1970s, we’ve significantly reduced how much we tax investment income

“The most we’ve taxed investment income is about 40 percent. That was in the late-1970s. Since then, rates have been much lower. In fact, until 2013, the most investment income could be taxed was 15 percent. It’s now about 25 percent.”

“Keep in mind that, if you’re filing as a single person, your salary and wages starting at $38,000 are taxed at 25 percent — and from there the rates only go up.”

“Since it’s the rich who made more and more money on investments, taxing investments less helped them a lot.”

“American tax and transfer policies are among the worst in reducing inequality, compared to other developed countries”

“The below chart shows how effective tax rates have changed. Even though we have a relatively progressive tax system, we now have some of the lowest tax rates in decades. Low tax rates mean the US collects less revenue — and can transfer fewer resources back to taxpayers.”

“Here’s the same chart, but showing who controlled Congress when these effective tax rates changed:”

“This isn’t just a story about tax policy. Salary growth has also been higher at the very top of the economic ladder. CEO, athletes, managers, and financial professionals have seen a huge increase in wages.”

“So the past half century has been quite prosperous for a small number of people.”

“Meanwhile, the policies that help everyone else have suffered.”

The federal minimum wage has been going down.

“Adjusted for inflation, minimum wage has gone down by about $3 an hour.”

“And labor unions have shrunk dramatically”

“The percentage of workers who are part of labor unions has plummeted. Studies show unions help workers earn more.”

“Meanwhile, some argue that technological advances and the decline of manufacturing jobs has made education an even bigger determinant for future income.”

That means access to education is more important than ever before — and lower degrees become less valuable

“The chart below shows that those with bachelor’s degrees or less have seen stagnant or falling wages, while those with master’s and doctorate degrees have generally seen rising wages.”

“But despite all this some people (especially republican legislators), think there’s no problem.”

4 comments

  1. Gronda, this has always been a shortcoming of Trickle Down Economics. These execs said the same thing the 400 one-percent-ers said ok their letter to Paul Ryan. Keith

  2. Dear Keith,

    I read that about that letter in the 11/2/ 17 Washington Post article by Heather Long. Here are excerpts:

    “More than 400 American millionaires and billionaires are sending a letter to Congress this week urging Republican lawmakers not to cut their taxes.”

    “The wealthy Americans — including doctors, lawyers, entrepreneurs and chief executives — say the GOP is making a mistake by reducing taxes on the richest families at a time when the nation’s debt is high and inequality is back at the worst level since the 1920s.”

    “The letter calls on Congress not to pass any tax bill that “further exacerbates inequality” and adds to the debt. Instead of petitioning tax cuts for the wealthy, the letter tells Congress to raise taxes on rich people like them. It is being released publicly this week, as Republicans debate legislation that would add $1.5 trillion to the debt to pay for widespread tax cuts for businesses and individuals.”

    These Congress peoples have gone too far. This a very irresponsible bill.

    Hugs, Gronda

  3. They never invest tax cuts back into the economy, unless it’s when they spend on themselves, otherwise it simply gets syphoned off into secret little places. If they want extra money to invest they either con the govt into singing up to a contract or getting their share holders to stump up the cash; unless of course they have a tame bank in their pockets.

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