Sometimes eating the rich is counterproductive.
Speaking of eating the rich, we hear a lot about fat cat corporations and how they must be taxed to help the rest of us. Eating the rich might sound initially tasty, but geting even at corporations by raising corporate taxes is self-defeating for wage earners.
The populist anger prevalentin this election season is understandable and justified because the wages of working people remain stagnant, even if the overall economy is making some slow advances.
According to a Wall Street Journal piece this morning by Aparna Matur Kevin Hassett, the average hourly wage for manufacturing workers in 2006 was $20.83. Adjusted for inflation, it is a dollar more today. And the prices of things a family needs are going up.
Both presidential candidates engage in populist rhetoric. Hillary Clinton's includes portraying Donald Trump as the friend of fat cat corporations. Hassett and Matur explain a more hopeful approach, which relies on cutting corporate taxes:
The dissatisfaction of working-class voters in both parties is understandable. Yet this presents a once in a lifetime policy opportunity. If the next president has a plan to increase wages that is based on well-documented and widely accepted empirical evidence, he should have little trouble finding bipartisan support. If politicians in Washington oppose the president’s ideas, he can, as Ronald Reagan did, go over their heads to the outraged voters.
Fortunately, such a plan exists. Regardless of who is elected in November, workers from both parties should unite and demand a cut in corporate tax rates. The economic theory behind this proposition is uncontroversial. More productive workers earn higher wages. Workers become more productive when they acquire better skills or have better tools. Lower corporate rates create the right incentives for firms to give workers better tools.
Leaders from both parties have proposed lowering America’s 35% corporate tax rate, the highest in the developed world. President Obama has called for cutting it to 28% (25% for manufacturers), while Donald Trump proposes 15%. Hillary Clinton is the outlier. To the detriment of her working-class supporters, she has failed to back even a minor cut to corporate taxes.
The idea that taxing corporations to death isn't productive might be unpopular with some politicians, but there is abundant evidence that lower corporate taxes lead to higher wages, and thus benefits working people.
Hassett and Aparna are authors of a 2006 study on the link between corporate taxes and hourly wages of employees. They examined a large literature about who actually pays when governments exact high taxes from corporations.
It was generally believed that customers, not corporations, paid for sales tax increases. Aparna and Hassett applied the method for studying this to taxes and the hourly wages of manufacturing workers. They write:
We applied a similar method to study the impact of corporate taxation on the wages of blue-collar workers. If a higher corporate tax reduces the return to capital, then capital may move abroad.
This outflow could reduce the productivity and compensation for domestic workers, who are relatively immobile. So just as a sales tax might have an impact on the final goods price, a higher corporate tax might have an impact on wages. If wages go down when corporate taxes go up, the worker is left holding the tax bag.
Our empirical analysis, which used data we gathered on international tax rates and manufacturing wages in 72 countries over 22 years, confirmed that the corporate tax is for the most part paid by workers.
This result was controversial at first, and appropriately so. Scientific and economic progress flows from attempts to question and replicate. There has since been a profusion of research that confirms that workers suffer when corporate tax rates are higher.
Hassett and Aparna cite some of the studies that have bolstered their findings. Despite these findings that where they point in terms of policy, we are stuck in the eat-the-rich rhetoric:
Why are we stuck in such a bad place? A key factor has been the intransigence of Democratic politicians, such as Mrs. Clinton, whose plan to increase wages is to keep taxes high at the corporate level, increase taxes on business income at the individual level, and to punish firms that move overseas in response to these high taxes.
This anti-corporate policy may be music to the ears of supporters of Bernie Sanders and Elizabeth Warren and the Democratic Party’s left wing, but it will make the lives of ordinary Americans worse.
Like many policies of the left, anti-corporate rhetoric is mostly good for politicians and not the people they purport to help.