The GOP’s Magical Job-Stoking Tax Cut

It is really important that the GOP decorated their Tax Cuts and Jobs Act with the word “Jobs” because they’re going to sell this to their base using the magical thinking that giving a big tax cut to corporations is giving a big raise to workers. The idea is that you give more money to big businesses. The executives, in turn, will take that excess money and trickle it down onto their employees in the form of raises.

This wishful thinking is predicated on the people at the top suddenly feeling compelled to share this new windfall when they’ve refused to share all the windfalls of the past. For some reason, that didn’t happen with the previous two big tax cuts (Reagan/Bush) and, of course, GOP supporters of this deal say “middle class hasn’t gotten a raise in decades,” without pointing out that the severe wage/income gap began with the coming of the Reagan tax cut (the graphed data is stark) and it has continued unabated, the Bush tax cuts be damned.

You see, the average pay for an S&P 500 CEO is 271 times the pay of their average worker. And it’s 819 times workers making minimum wage. Amazingly, the ratio was 20-to-1 in 1965 and 59-to-1 in 1989. Oddly enough, those dates coincide with the high point of the Middle Class and the beginning of the end of the Middle Class as a mass phenomenon. And 1989 was a point of acceleration for the financialization of the economy, which brings me to the point: this economy is a hoarding economy, not a productive economy. Hoarding is rewarded over production. Inflating stock prices with buy-backs is rewarded. Inflated valuations and speculation are rewarded. Exotic financial devices that repackage and sell debt are rewarded. Cutting the cost of labor is rewarded. And the people at the top are rewarded for stoking stock prices, no matter the P/E ratio. And shorting your own bad decisions is rewarded … and your simple greed is bailed-out if your bottom line was big enough.

That’s because this economy is a rigged game rooted in speculation and salesmanship and vaporware. Trump touts the five trillion dollars of wealth “created” in the stock market … but it’s all just paper … or, actually, just data stored on computers. IF it becomes tangible wealth because the holders of the data decide to cash out and take some profits, that’s going to be enjoyed by the top 10% of Americans who hold 80% of the stock market. If the tax cut comes through you can expect some profit-taking. The market has been rising on speculation of a tax cut, after all. Why not visit Wall Street’s magical ATM machine? And just like the previous two tax cuts (Reagan/Bush), this will put money it the hands of the people at the top who’ve shown since 1981 that they have no inclination to share their wealth with “the workers” in the form of raises, in spite of their own meteoric compensation.

So, why would they hand out higher wages now … particularly with a whole new robotic workforce on the horizon? Why not hoard the wealth and take advantage of the initial cut to, and eventual end of, the estate tax? Why not cement your own family’s elite position before the next shock? And why give raises to people who’ve become grateful to just have a job … or two jobs, as the case may be?

No, like the Reagan and Bush tax cuts, this Congressionally-sanctioned hoarding will be the predictable prelude to another leg in America’s perpetual boom and bust cycle … which eventually will lead to another call for cuts to start the hoarding process again. That is, if there is anything left.

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'The GOP’s Magical Job-Stoking Tax Cut' has 1 comment

  1. December 3, 2017 @ 7:16 pm Slash and Burn | Who Wins and Who Loses in the Trump Tax Plan

    […] economy has shifted to an economy based on hoarding, in which consolidating assets is rewarded over productive activity. From […]

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