We warned over and over again about Trump and the Republicans’ tax cut scam. Republicans have done a masterful job in concert with several corporations to frame bonuses and pay hikes as a result of the GOP tax cuts. The smoke and mirrors cannot compete with the reality.
The tax cut scam is starting to bear fruit. The only problem is that that the nourishment goes to the wealthy as usual. Paul Krugman’s New York Times article titled “Bonuses and Bogosity” hits the nail on the head.
He first points out the smoke and mirrors.
On Feb. 19 Walmart, America’s largest employer, announced broad-based pay hikes. In fact, it announced that it would be raising wages for half a million workers. The Trump tax cut is working! Oh, wait. That announcement was three years ago – it came on Feb. 19, 2015. And as far as I can tell, nobody gave the Obama administration credit for the move.
Why did Walmart raise wages? Partly because the labor market was tightening: unemployment had fallen more than 40 percent from its peak in 2009 (a decline for which the Obama administration’s stimulus and other policies actually do deserve some credit.) This tightening labor market meant that Walmart was having trouble attracting workers.
Krugman then points out the basics of Economics 101.
The moral of this story is that unless the economy is deeply depressed, there will always be some companies, somewhere, raising wages and offering bonuses. Which brings me to the Trump tax cut and the very bad, no good job much of the media initially did of covering its effects.
Paul Krugman points out what everyone should know, tax cuts take time to work itself into an economy, and as such, it is impossible that the Trump tax cut scam has had any effects yet. He then points out how the media misinformed the American public.
Yet for a while there the news was full of stories about companies announcing that they were giving their workers bonuses thanks to the Trump tax cut. Why were they doing this? Well, the tax cut provided no immediate incentive to raise wages. It did, however, give companies that benefited from the tax cut a strong political incentive to claim that the tax break was the reason for bonuses or wage hikes they would have given in any case. Why not? They want the tax cut to look good, since it’s good for them. And hyping its benefits is a cheap way to make a de facto campaign contribution to an administration that can do a lot to help companies it likes, say by removing pesky safety or environmental regulations.
In other words, the whole “bonuses thanks to tax cut” story was bogus, and obviously so. Yet much of the media fell for it. There was also a big element of innumeracy involved. Most people have no idea just how big the U.S. economy is; if you say “company X just hired 1000 workers” or “company Y just gave 5000 workers a $1000 bonus” they imagine that these are big stories, when in reality they’re just noise in an economy where around 5 million workers are hired – and an almost equal number quit or are fired – every month.
Krugman then tells the story that the media should have been covering ad nauseam.
The numbers we have so far show that the much-hyped bonuses are trivial – less than $6 billion, or 0.03% of GDP – while stock buybacks have been more than $170 billion. And many of those bonuses would probably have happened anyway, whereas stock buybacks are running far above historical levels. Furthermore, the surge in stock buybacks suggests that the long run effect of the tax cut on wages will be small. Remember that the chain that should lead to trickle-down begins with lower taxes -> higher investment. If companies use the cuts to buy back stocks, not add to plant and equipment, the wage-growth story doesn’t even get started. So the real news about the tax cut is that it is – I know you’ll be shocked – mainly a giveaway to corporations. Who could have predicted?
And there you have it. Most Americans do not see the benefits. We transferred $1.5 trillion to a few who did not need it or deserve it. And now we will all suffer from the real issues that afflict the country, student debt, deteriorating infrastructure, substandard healthcare, inadequate child care for working parents, and on and on.
Also published on Medium.