It has begun. The narrative of the Republican tax cut lifting growth and incomes – and thereby making us all better off — is perniciously weaving its way into the discourse. On January 27, the New York Times ran a lead article about the coincidence of economic growth across all major global economies. At the very outset, the article asserts that U.S. economic growth “has been propelled by government spending unleashed during the previous administration, plus a recent $1.5 trillion shot of tax cuts.” Incredibly (that’s correct, it is not credible), the Republican tax cut has boosted U.S. economic growth within weeks after taking effect.
Last week I argued that the Republicans might just win their bet that their tax cut will yield political gains, however heavily the benefits are skewed towards corporations and the wealthy, and however grave the long-term damage to the health of the U.S. economy and polity. Evidence in favor of this hypothesis is already mounting.
As an example of the narrative, the Associated Press on February 1 reported that the tax cut is “beginning to deliver bigger paychecks to workers,” citing cases of struggling middle class Americans: a managed care worker, a secretary at a public school and a couple of teachers.
The January 22 release of the International Monetary Fund’s updated World Economic Outlook feeds directly into the narrative. The Outlook projects faster near-term U.S. economic growth, attributed substantially to the tax cut. The IMF report has been widely cited and celebrated although the forecast predicts a negative impact on growth beginning in 2022, and says nothing about consequences for wages and economic inequality other than to note that benefits are particularly focused on upper income households. Buried toward the end of the IMF’s document is the guidance that fiscal policy be shifted toward improving the quality of public health and education and protecting the vulnerable. This is precisely the opposite of what is now taking place, and these are policy directions that have become LESS likely because of the tax cut rather than more possible.
A Monmouth University poll released on January 31 offered evidence of the rising popularity of the tax cut. A month ago, just over a quarter of respondents approved of the tax bill, and nearly half disapproved. The public is now divided evenly, with 44% each approving and disapproving. The data revealed an important motive for the shift in sentiment: fewer people now expect their taxes to rise as a consequence of the tax bill.
Meanwhile, corporations have embarked on public relations campaigns to explicitly link bonuses and wage increases to the tax bill. In announcing bonuses and an increase in their minimum wage, Wells Fargo asserted that “we believe tax reform is good for our U.S. economy.” Yes, it’s nice to extol the virtues of fresh fruit while you allow an acquaintance to sample a grape as you unwrap your gourmet Harrod’s fruit basket.
The good fortune for the Republicans who gave us the tax cut is that to the extent economic growth continues and there is evidence of wage gains, it will be easy for them to credit the tax bill for the good news. Of course, deeper analyses have found evidence that some wage increases explicitly linked to the tax bill in corporate press releases have little or nothing to do with the tax cut at all, as with the Los Angeles Times report on Wells Fargo’s increase in their minimum wage to $15 per hour. Last January, operating in a tight labor market, Wells Fargo increased its minimum wage to $13.50. The company is headquartered in California, which has mandated an increase in the minimum wage to $10.50 an hour for 2017, rising to $15 per hour by 2022. It is entirely likely that the announced wage increase would have taken place without the tax bill.
In fact, eighteen states increased minimum wages effective January 1, 2018, and minimum wage movements and in some cases union bargaining efforts have had some successes in an environment of high corporate earnings. However, with the discourse of tax bill benefits firmly implanted, media accounts will by default attribute wage gains and worker bonuses to the tax bill, reinforcing the shift in public perceptions.
Ironically, corporations have not only a political incentive to announce bonuses in the immediate wake of the tax bill; they have a financial incentive as well. By announcing the bonuses in 2017, they can deduct the expense at the current 35% corporate rate rather than new rate of 21% effective in 2018. AT&T, for example, will by this means save $28 million.
The deep unfairness of the tax bill notwithstanding, citizens struggling to stretch their budgets appear to base their views of the bill on this straightforward question: “Have my taxes gone up or down”? Policy makers are responsible for safeguarding the longer-term interests of the national economy; the tragedy of tax bill discourse is the questions they are NOT asking. Instead of “How is $1.5 trillion of revenue best utilized?” or “How can we use our resources most effectively to strengthen social cohesion and the well-being of citizens?” they have asked “what is the minimum price necessary to buy popular acceptance of a vast giveaway of resources to political supporters?” Good politics, but disastrous policy.