You might be tempted to say that it’s too early to tell. After all, the law has been in effect for only a few months, and we got our
first look at post-tax-cut economic growth only last week. But here’s the thing: To deliver on its backers’ promises, the tax cut would have to produce a huge surge in business investment — not in the long run, not five or 10 years from now, but more or less right away. And there’s no sign that anything like that is happening.
Let’s talk about the economics here.
Anything that increases the budget deficit should, other things being the same, lead to higher overall spending and a short-run bump in the economy (although there’s no indication of such a bump in the first-quarter numbers, which were
underwhelming). But if you want to boost overall spending, you don’t have to give huge tax breaks to corporations. You could do lots of other things instead — say, spend money on fixing America’s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers.
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It never made sense to believe that corporations would immediately share their tax-cut bounty with workers, and they haven’t. Any news organizations that let themselves be bamboozled by cherry-picked stories of firms announcing worker bonuses after the tax bill passed should be ashamed of their credulity.
The real logic behind corporate tax cuts is that they’re supposed to lead to higher investment. This investment, in turn, would gradually increase the stock of capital, simultaneously driving down the pretax rate of return on investment and pushing up wages.
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But the other, equally important question is, how long is the long run? As Greg Leiserson of the Washington Center for Equitable Growth
points out, “every month in which wage rates are not sharply higher than they would have been absent the legislation, and investment returns are not sharply lower, is a month in which the benefits of those corporate tax cuts accrue primarily to shareholders.”
