Wages Still Lagging

Aug 15, 2018

To the Editor:

The president cited the 4.1 percent increase in gross domestic product (GDP) for the second quarter of 2018, compared to the second quarter of 2017, as proof of the success of his Tax Cuts and Jobs Act. That growth is welcome, but since most Americans get their economic benefit from their wages, a better measure of success (or failure) would be the change in real worker wages (the dollar increase minus the lower value of each dollar or the inflation rate) since the act was passed in January 2018. And on that score, the act is failing.

Bureau of Labor Statistics data shows a meager increase of 0.1 percent in real worker wages from January to June 2018. Bloomberg data from the PayScale Real Wage Index shows a bleaker picture, a loss of 1.8 percent in real wages since the act’s passage. Even if the first 80 percent of workers spent all of the individual tax cuts they got from the act, it would only account for about 11 percent of the GDP increase.

So, if total national spending is up but most workers aren’t doing the spending, then it must be the well off and the corporations who are reaping the benefits.

The act has also hurt workers in other ways. By substantially increasing the federal budget deficit to almost $1 trillion a year it has increased interest rates, making larger purchases more expensive.

Therefore, for the country as a whole, this is not a good economic policy, but it should not come as a great surprise. The recent Tax Cut and Jobs Act cut the domestic corporate taxable income rate from 35 to 21 percent, virtually eliminated U.S. tax on future corporate overseas profit and allowed the return to the U.S. of trillions of dollars of past overseas profit at a reduced tax rate. But it placed no requirements at all on having even part of that corporate tax windfall invested in U.S. plant, equipment, wages, worker benefits or research and development.

Without such a requirement, corporations will do what they are designed to do, secure profit for their officers and shareholders, and that is exactly what we are seeing, record stock buybacks ($700 billion thus far this year), dividends to shareholders, CEO bonuses, mergers and acquisitions.

For those readers who may feel this is just a criticism of the president from a Democratic group, please know that we have been equally critical of our own party for not laying out clearly a broad wage increase plan, i.e. beyond just the minimum wage. Both parties should be pursuing changes to the Tax Cut and Jobs Act that will actually raise wages and add good jobs here. Those changes should include:

• Providing tax breaks for domestic businesses and their investors that consistently create good jobs or increase wages and benefits;

• Raising the basic corporate taxable income rate from the very low 21 percent rate to 28 percent, so corporations pay for their fair share of government services and still maintain overseas competitiveness;

• Restoring U.S. tax on overseas plant operations so that the total overseas tax rate (foreign country tax plus U.S. tax) is the same as the domestic tax rate – to end the tax incentive for moving plant and jobs overseas, and

• Reducing the basic corporate tax rate of 28 percent only on the portion of their domestic and overseas income that is invested in new U.S. plant or job/wage growth, not on income used for stock buybacks, mergers, acquisitions, dividends and CEO compensation.

Our large corporations and investment banks are the only entities that earn the trillions of dollars each year needed to fix the country’s wage stagnation problem, and the tax code is the key tool to use.

Bob Stern, vice president

Democratic Club of LBI

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