Analyzing the republican tax bill has been a challenge because of the complexity of the U.S. tax code and the alacrity with which the bill was forced through both houses. The Congressional Budget Office had hardly weighed in before the gavel was slammed and the bill was on its way to being signed. So, what impact will it have on average Americans and corporations?
The republican tax plan sought to lower the corporate tax rate from 35 percent to 21 percent and render the overall tax code more intuitive for Americans to navigate. The reasoning behind doing so was that lowering the corporate tax rate by 14 percentage points would lead to unprecedented investment and rehiring in the United States.
That claim was the basis for Paul Ryan’s claim that this tax reform bill could well prove budget neutral – by spurring massive investment – and not a $1.4 trillion addition to the deficit as many impartial economic bodies had estimated. Others object to Paul Ryan’s claims on the grounds that the tax cuts for families are temporary and quickly phased out whereas the tax cuts for corporations are permanent.
Financial experts were quick to point out that companies comprising Standard and Poor’s top 500 companies are already buoyed by more than one trillion in uninvested capital. Observers haven’t been overwhelmed with an investment boom from these companies, say skeptics of Paul Ryan’s tax reform agenda.
Another popular argument is that more savings and fewer taxes will lead companies to invest in better technology, which will inevitably cause firms to hire more workers and raise wages. Here again, history tells a different story as firms in the past have pocked the savings and largely employed technology to downsize and automate jobs out of existence. Stock buybacks and greater corporate interest in dividends have been more likely sources of investment for big companies.
In fact, paying down corporate debt and buying back more stock were the two things that CEOs from around the country said they would do in the event of tax cuts, according to research conducted by Bank of America.
The conservative think tank funded by the Koch brothers, the Cato Institute, estimated that some time in the distant future tax changes enacted today could bolster the average worker’s salary by up to $2,000. That’s very good news for workers, but only time will tell the full corporate impact.