GOP’s Trickle Down Economics Prices Millions Out Of The American Dream
Republicans passed a destructive tax plan based on a pipe dream
Since the 1980s, Republicans have been enamored by the trickle down theory, the idea that wealth trickles down from the wealthy as they use money from tax cuts and higher profit margins from deregulation to build new businesses, expand existing ones, spend on luxury goods, and create job after job after job in the process. But the three times it was tried, those jobs not only failed to materialize and wages remained stagnant for over three decades, the last time ended in the Great Recession, as risky investments spurred complex financial shell games, normalizing ever more exotic and farcical securities often underpinned by outright fraud and bad math.
But why doesn’t this seemingly straightforward idea work in the real world? After all, it sounds like it should, which may be in part why Republicans continue to cling to it. It feels, in the worlds of Stephen Colbert, truthy, and it was made abundantly clear during the primaries in 2016 that truthiness, not actual facts and statistics, are more important than truth to the GOP and their base. And yet, it’s those simplest economic hypotheses which most frequently turn out to be built on flawed and incomplete premises. They’re the spherical chicken in a vacuum of economics, unbothered by the global markets, labor productivity, innovation, automation, and corporate finances.
In fact, as the Republican leadership was boasting about how many jobs their current trickle down tax bill will create before having to pull it off the floor thanks to a trillion dollar error— no, no, you read that right, they were off by one trillion dollars in their analysis?—?and sending it back to committee, the very CEOs they expected to provide economic growth said they were going to spend their newfound cash on paying down debts and dividend payments to shareholders. Everything the bill does will help the investor class and those who use limited liability companies to do business, and it pays for that help by eliminating dozens of very useful deductions for typical Americans and piling on over a trillion dollars in debt in every single expert assessment.
Now that the tax plan passed the Senate in the manner that all fine, thorough legislation does, on a party-line vote in the middle of the night, with changes scribbled in barely legible handwriting in the margins, after shutting down all motions to take a few days to review the still-being-written bill, it’s probably a good time to explain exactly why virtually everything in it is a terrible idea. Sacrificing your deductions to the God of Republican Capitalism isn’t going to result in explosive job growth outside the Wall Street fan-fiction Republican think tanks pass off as policy. It all boils down to one simple fact. Companies have very different priorities than governments, and expecting them to simply do the bidding of politicians is an exercise in wishful thinking.
Just imagine yourself as the CEO of a typical mid-to-large-size company for a moment. Unlike your counterparts in China or other authoritarian states, you do not have a five-year economic plan to follow and government-issued goals to hit. What you want to do with your money is up to you and with a major tax cut, you’ll think twice about where to spend it. And you have a lot of places to spend it before you start thinking about expansion and market domination. The first place you’ll most likely start? Addressing your liabilities.
More than likely, you have debts. Maybe you splurged a little on a nicer office to boost employee morale. Maybe you financed a research project or a major technical upgrade because you didn’t have enough cash on hand, got a good rate, or needed to stockpile more money for the future. The first thing you’re going to do with a windfall is pay down those debts or consolidate offices and buy your own building to avoid lease payments in the future. Whatever big moves you need to make to lower your overhead, you now have the chance to make them. Having a cleaner balance sheet not only helps your profit margin, it also raises your stock value.
Next, you have your investors. Your business more than likely took on a cash infusion from people expecting to make their money back several times over, or has partners who contributed their time, effort, and expertise solely for the equity in your company at first, but will soon expect to be compensated for their continued involvement as well. For many businesses, investors are the only reason they exist so paying them in dividends, bonuses, and consulting fees has to be a priority. These people took a financial bet on you, and you’re going to need them around for more leads, passing down key institutional knowledge, and help you out in a serious jam.
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Of course one could argue that some of those investors may be malicious and greedy corporate raiders and the last thing they need is more money being handed over to them by management. One could also argue than impatient investors demanding outsized paydays on overly aggressive schedules hurt long-term returns and corporate R&D required to stay ahead of the competition, and the business world is very much aware of this problem. However, these issues need to be handled on a company-by-company basis and impact some investors and shareholders, not all, and don’t change the priorities of CEOs and upper management when it comes to distributing cash.
Speaking of management, successful companies have senior employees in management, sales, and technical positions who are frequently scouted by competitors for their skills. Without them, the products languish and sales remain flat at best or start a downward spiral at worst. Paying them bonuses and offering equity to keep them at the company is important, as is letting them vest what equity they have with buybacks or selling them on the open market. Compensating these top performers will more than likely be on your post-windfall to-do list after paying off debts and compensating your investors, especially in a world where people tend to switch jobs every few years instead of every decade or two.
So finally, after all this, time to hire new workers? Not exactly. You see, in the last three decades, worker productivity shot through the roof, and you need fewer bodies to scale your operation. Likewise, with AI emerging from sci-fi into the real world and poised to eliminate millions of jobs altogether, there’s a good chance that you’ll just write more software in an expansion effort, not start interviewing candidates. Humans are expensive. They need training and tools, they often require benefits, switch jobs, and so on. Companies hire only when they need to, and often, for specialized tasks that require having certain training, experience, certifications, and knowledge that can’t be automated or is deeply involved with automation and high tech creativity.
This is in part why so many companies complain that they can’t find enough qualified candidates when they do hire. They want special skills which are often acquired with steady experience and higher education, and the bill we just saw passed in the Senate actually makes them harder to get and shrinks the qualified pool even more for businesses. Since students will be taxed on tuition waivers on post-graduate education and relocations will no longer be tax deductible, it will be far more expensive to study what companies want and to relocate to where the jobs are. Millions of possibly desirable workers will be stuck further from the employers who want them unless they’re so desired that managers throw in large relocation packages and shell out for their tuition when necessary.
Ultimately, this will leave workers’ socio-economic mobility in the hands of companies and their parents. Instead of investing public funds in education, training, and encouraging migration to better jobs and lives, this plan just hands them back to profit-making entities who aren’t?—?and shouldn’t?—?be obliged to care if you achieve the American Dream or end up in a refrigerator box under a bridge in the end. Workers in great demand, business owners, and the kids of both groups will do extremely well. The rapidly dwindling white and blue collar middle class? They’ll be subsidizing these groups’ golf outings and private jets, and paying far more in taxes on their student loans and scholarships in grad school on income they never actually get.
While it’s understandable that West Virginia coal miners and truck drivers who we’re told to think about when crafting policies for the future day in, day out, probably don’t care about becoming doctors, scientists, engineers who’ll build tomorrow’s cars, computers, and weapons, or professors who’ll teach the next generation of lawyers, doctors, scientists, and engineers, it’s difficult to believe that these coal miners and truck drivers don’t want their kids to be in those fields when they grow up. And that’s exactly what that bill makes a lot more difficult than it used to be for the sake of outsourcing the tricky and uncertain balancing act of job creation to corporations just trying to make a profit and keep their shareholders happy.
The GOP has been wedded to trickle down economics since the last time they had an original idea, and it shows. It didn’t really work in the 1980s, when automation was just a gleam in engineers’ eyes and computers were few and far between. To think that in an age when humans are far more likely to lose a job to an app than another human, even if that human is on the other side of the world and willing to work for pennies on the dollar, supply-sideism is the answer to all that ails us is malice, a degree of ignorance and incompetence that should be criminal, or a noxious mix of both.
Just like a doomsday cult trying to make excuses for why the world didn’t end when and how they had predicted, the GOP is desperately trying to pretend that another trickle down tax cut is the way and the light. And they either haven’t learned their lesson after 40 years of failure, or don’t care to because their donors are getting richer, and their voters appear incapable of holding them accountable for their obvious woes.