It’s nonsense, of course. Think of the motivation: lots of companies are raising wages at least a bit in the face of tight labor markets; pretending that it’s because of the tax cut is a cheap way to curry favor with an administration that has no hesitation about using regulatory and antitrust decisions to reward friends and punish enemies. It’s basically Carrier all over: make a Trump-friendly splash by declaring that he persuaded you to save jobs, then lay off lots of workers after the cameras have moved on.
.. even if you believe economic analyses that suggest corporate tax cuts are good for wages, it shouldn’t happen right away. Any trickle-down should come about because the tax cuts lead to higher investment, which leads over time to a larger capital stock – and it’s the increase in the capital stock, which may take many years, that leads to the wage rise.
The Link Between Productivity and Pay Is Very Much Alive, Summers Paper Finds
But a new study co-authored by Harvard University economist Lawrence Summers says that’s wrong. He and Anna Stansbury, a doctoral student at Harvard, found a strong and persistent link between hourly productivity and a variety of wage measures since 1973. The problem, they conclude, is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way.
.. between 1973 and 2015, they found that a one-percentage-point increase in productivity growth generally led to a 0.5- to one-percentage-point increase in average or median pay growth, depending on the type of workers measured. Yet while productivity and wage growth tended to moved together over these short periods of time, there was enough of a difference in growth rates that over time a huge gap opened up between the pay and productivity. By 2015, productivity was up 73% from 1973 but wages were up just 12%.
.. they say other forces such as weaker unions were eating away at the ability of workers to share fully in the rise in productivity.
.. The late 1990s was one of the few times since 1973 when worker pay grew briskly, but that, he says, was probably because unemployment was around 4%, not because productivity was growing rapidly.
.. Productivity almost always grows faster than pay. “It’s a matter of whether you want to look at the glass half full or half empty,” Mr. Mishel says. “We’re saying it’s half empty, at best.”
Other Times Unemployment Has Been This Low, It Didn’t End Well
Each period is different, but very low unemployment rates have often preceded significant economic busts
.. There have been only three fleeting periods in the past half-century when the U.S. unemployment rate was as low as it is today.Low unemployment of the late 1960s preceded an inflation spiral in the 1970s. The late 1990s bred the Dot-com bubble and bust. The mid-2000s saw the buildup and collapse of U.S. housing.
Don’t Bet against Tax and Health-Care Reform in 2017
Amid all the Russia controversy, Trump and the GOP Congress can get it done.
.. Look, the House has already passed a repeal and replace of Obamacare. And a Senate health-care working group led by Lamar Alexander and Ted Cruz is making progress resolving key issues between moderates and conservatives. There’s no reason why the AHCA can’t become law by the August recess.
And that opens the door for taxes.
.. Representative Peter Roskam, who chairs the tax-policy subcommittee, said this last week: “I’m of the view that 2017 is the year.” He thinks tax reform is easier than replacing Obamacare.
.. So following a markup, Ways and Means can report out a bill. And because prosperity is America’s Number One issue, it will pass the floor relatively easily. And that will put pressure on the Senate to get moving.
.. the very core of the tax bill is a simple three steps:
- a deep corporate-tax-rate cut,
- immediate expensing for new equipment of all kinds, and
- the repatriation of offshore cash.
This is the tonic that will restore capital formation, productivity, real wages, and growth.
Both Senate and House leaders have got to understand how flexible reconciliation is. It can be nearly anything you want it to be. The key player is Senate president Mike Pence, who can overrule the parliamentarian.
.. Treasury Secretary Steven Mnuchin
.. “What I have said repeatedly is that any plan we put forward we believe to be paid for with economic growth.”
.. And lowering marginal tax rates across-the-board, especially on large and small businesses, will foster the mother of all prosperities — the one middle-class Americans in all those red counties that voted for Trump have been yearning for.