The Plum Line | Opinion
February 27, 2018 at 1:21 PM
When Republicans put together their tax bill last year, it was not much of a surprise to see that its centerpiece was a gigantic corporate tax cut, lowering the statutory corporate rate from 35 percent down to 21 percent. This cut accounted for about $1 trillion of the bill’s total $1.5 trillion cost, but Republicans said it really wasn’t about helping corporations at all.
No, the real target was the workers: Corporations would take the money and use it to create new jobs and raise the wages of those working for them, as trickle-down economics did its magical work.
Democrats, on the other hand, said it was a scam. They charged that workers would see only a fraction of the benefits, and instead corporations would use most of their windfall for things like stock buybacks, which increase share prices and benefit the wealthy people who own the vast majority of stocks.
And of course, most of the news media treated this argument in the standard he said/she said manner: Republicans say this, Democrats say that, and the truth lies in some secret location we may never actually reach.
Well, it has been only two months since President Trump signed the bill into law, and we’re already learning what anyone with any sense knew at the time: Everything Democrats predicted is turning out to be right. Let’s look at this report in the New York Times, which describes how stock buybacks are reaching record levels:
Almost 100 American corporations have trumpeted such plans in the past month. American companies have announced more than $178 billion in planned buybacks — the largest amount unveiled in a single quarter, according to Birinyi Associates, a market research firm.
Such purchases reduce a company’s total number of outstanding shares, giving each remaining share a slightly bigger piece of the profit pie.
Cisco said this month that in response to the tax package, it would bring back to the United States $67 billion of overseas cash, using $25 billion to finance additional share repurchases. Alphabet, the parent company of Google, authorized up to $8.6 billion in stock purchases. PepsiCo announced a fresh $15 billion in planned buybacks. Chip gear maker Applied Materials disclosed plans for a $6 billion program to buy shares. Late last month, home improvement retailer Lowe’s unveiled plans for $5 billion in purchases.
While the Times does note that some businesses are raising salaries, the piece concludes that “much” of the savings from the tax cuts is going to these buybacks, with this big-picture effect:
Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price.
But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans.
This is exactly what Democrats warned would happen. How could Democrats have been so clairvoyant? Do they own a time machine?
Well, no. They applied logic, looked at data and understood history. Republicans, on the other hand, were spinning out a ludicrous fantasy with no basis whatsoever.
Among the things Democrats pointed out was that even before the tax cut, corporations were making near-record profits and sitting on mountains of cash; if they wanted to invest, create jobs and raise wages, they already had the means to do it. They also observed that even before the tax cut passed, corporations were saying publicly that they intended to use the money for stock buybacks.
But what about those bonuses that companies announced and that Trump kept touting? It’s true that some companies did give workers one-time bonuses. But it was essentially a PR move. Take Walmart, for instance. It made a splashy announcement that it would be giving bonuses of up to $1,000 to workers, which sounded great. But then it turned out that you’d only get that much if you’d been working there for 20 years, and the average worker would get around $190. Which is better than nothing, but it isn’t exactly going to transform your life.
And as ThinkProgress noted, the total value of Walmart’s bonuses was $400 million, which seems like a lot until you learn that over 10 years the value of the tax cut to the corporation will be $18 billion. In other words, about 2 percent of its tax cut is going to workers, at least in the short run.
How many times do we have to play this game? When a new policy debate emerges, Democrats try to make an argument that has some connection to reality, while Republicans make absurd claims in the knowledge that even if they get debunked in the occasional “news analysis” piece, on the whole they’ll be treated with complete seriousness, no matter how ridiculous they are.
It’s in part because lies about the future — and that’s what they are when you know that what you’re saying is utterly bogus — will not be policed with nearly the same vigor as lies about the past. If Trump claims that he had the largest inaugural crowd in history, it will immediately get shot down and subject to mockery even from neutral reporters. But if he says that all the benefits of his corporate tax cut will flow to workers, which is no less a lie, it will usually be met with “Critics question whether there is evidence to support his assertion.” When Republicans said that their tax cut wouldn’t increase the deficit because it would create so much economic growth that revenue would actually increase, it was treated as a questionable claim, not an assertion on par with “If I flap my arms, I can fly to the moon” or “With a week of training, my dog will be able to do a perfect rendition of ‘Enter Sandman’ on the electric guitar.”
Democrats could play this game if they wanted to. They could say that we need to fix the Deferred Action for Childhood Arrivals program because every “dreamer” creates 500 jobs for native-born Americans. They could say that single-payer health insurance will increase life expectancy to 150 years. They could say that we can give everyone free college at a cost of only $0.79 per taxpayer. But they don’t. It isn’t that Democrats don’t ever make a misleading argument or get some facts wrong, because they do. But when they do it’s generally on the small stuff, not on foundational claims that get repeated hundreds of times by every one of them in support of their highest legislative priority.
If you’re a Republican, you look at this news and say, “So what?” Everything’s working out great: You got your tax cut, corporations and the wealthy are swimming in money, and the next time you take control of government you’ll do it all over again. Sure, Democrats will squawk, and all their criticisms and predictions will turn out to be right. But it hasn’t stopped you in the past, and it won’t in the future.