I have heard proponents of the new tax bill assert that the result of its passage will be higher GNP growth, driven by new investment which will create jobs while avoiding a sharp increase in the deficit. The plan and its assumptions make me nervous and raise for me the following questions for which I would be grateful to hear your thoughts.
First, analyses of how public corporations spend their profit dollars indicated that about 50% is used to buy back stock and nearly that much is used for dividends. Why wouldn’t corporations use new after-tax profits the same way? Why would they need more cash flow to pull a job-creating investment trigger given that they had nearly two trillion dollars in free cash reserves in 2016?
Second, why wouldn’t firms invest new after-tax dollars in job killers such as automation (e.g. robotics or driverless cars)? A PwC study projects 40% of all jobs will potentially be automated within 15 years. Has that possibility been factored into the tax bills’ assumptions? Isn’t it also likely that corporations would invest extra money to accelerate their efforts to buy or merge with other firms, the net result being the elimination of redundant jobs rather than to increase employment?
Third, aren’t we facing an income and wealth inequality problem in this country? Most of the wealth and income in the U.S. are in the top 10% and even the top 1%. In fact the top 1% of the country owns more wealth that the bottom 90%. The hollowing out of the middle class jeopardizes the health of the economy in addition to creating a human economic and social cost. How exactly will the new tax bill with its reduction in estate taxes and preference for the stock-owning class avoid making the situation worse?
Fourth, how will the tax plan affect our ability to face critical problems in society? The estimates I have seen of the net revenue impact of the tax bill ranges from a negative 0.5 to 2 trillion dollars — with the lowest number based on “dynamic scoring” — the evidence for which seems weak at best. We need more revenue, not less, to deal with critical country issues such as:
· Reducing our national debt
· Building national defense — including cyber security
· Rebuilding our infrastructure
· Dealing with short-term and long-term effects of automation job loss
· Gaining access by all to healthcare and higher education
· Funding the aftermath of natural disasters such as hurricanes, droughts, and earthquakes
Is there a Plan B in case the pessimists are better forecasters than the optimists? And, finally, doesn’t it make sense to raise revenue in good economic times rather than lower it?
I look forward to hearing some (hopefully reassuring) answers to these questions.