We all want economic growth. So let’s ask: what’s the bottleneck on growth?
Ask one of today’s republicans, and you can expect to hear a host of false-fact fantasies, such as that we would grow faster if only American companies had competitive tax rates (spoiler: they do), or if they had more money for hiring (spoiler: corporate cash is at record levels), or if they had more money for investing (spoiler: ditto), or perhaps if the rich had more money that could magically trickle down to the masses (spoiler: LOL).
But here’s reality: America’s economic growth turns on how much our companies produce, not how much wealth they accumulate.
Which raises the question: why do companies produce?
Is it the size of their corporate treasure chests? If you hand Apple a few hundred million extra dollars, will that make it want to produce more iPads? Of course not.
When cash-flush companies get extra funds, they don’t produce more. They park the money overseas to earn tax-sheltered interest. Or they pay dividends, mostly to institutional investors (who then park that money overseas to earn tax-sheltered interest). Or they buyback their stock, which mostly enriches those same institutional investors, who then get the pleasure of watching their paper gains grow. None of this drives the production of extra goods.
Rather, to state the obvious, companies only produce what they expect consumers will buy. Apple makes the number of iPads that it expects to sell, and no more. And consumers, in turn, can only be expected to buy what they have money to purchase.
So we can give money to the very rich (who are already buying whatever they want), and we can watch them take that money and invest it (often in those tax-sheltered overseas accounts). Or we can give money to average Americans and watch them actually buy stuff, which in turn would cause our economy to produce more.
For most Americans, the single biggest thing keeping them from buying the amount of stuff that they’d like to buy is a lack of money. The very rich don’t have this problem–they already buy the stuff they want. And the very successful companies don’t have this problem either–they are already using record-levels of cash for mergers, stock buybacks, international investments, and the like.
So our economic bottleneck isn’t a lack of funds in the hands of the rich or on the part of American companies. It’s the lack of funds in the hands of consumers. Which means the easiest, most surefire way to grow the economy is to get funds to those who will spend them.
On October 3, 2017, Derek Thompson of the Atlantic penned what a middle class tax cut looks like, “This Is What a Real Middle-Class Tax Cut Would Look Like.”
“If one takes the White House’s word for it, tax reform is all about a single goal—helping the middle class, not the rich.”
“Gary Cohn, the White House’s chief economic adviser, says the president’s tax cut is “purely aimed at middle-class families.” Steve Mnuchin, the Treasury secretary, promised Congress that tax reformwouldn’t benefit the rich. House Speaker Paul Ryan says the plan’s “entire purpose” is to lower middle-class taxes.”
“But the promises don’t fit the plan. As my colleague Annie Lowrey has written, the still-unfinished GOP policy would deliver half of its benefits to the top 1 percent, according to an analysis by the nonpartisan Tax Policy Center (TPC). Meanwhile, America’s poorest families would get a minuscule tax benefit—less than 1 percent growth in after-tax income. One in five Americans making the median household income would actually see a tax hike, particularly if they live in high-tax states and have lots of kids. (When Senator Rand Paul discovered this fact, he sharply criticized the plan on Twitter.)”
From the Atlantic, here’s an example (THE ENTIRE ARTICLE) of what that- might look like: This Is What a Real Middle-Class Tax Cut Would Look Like – The Atlantic https://www.theatlantic.com