Expect a renewed bout of spruiking for company tax cuts this weekend after the second quarter GDP results for the US are released on Friday, with forecasts of annualised growth of 4-5%. That kind of result will be taken as evidence of the benefit of cutting company taxes — except that it’s likely to be a one-off effect reflecting what happens when you pump huge fiscal stimulus into an economy already near or at full employment.
Nonetheless, given local advocates of company tax cuts have seized on any evidence from the US they can find to make their case, the Financial Review, the Business Council and the Liberals are likely to cite it as evidence of the need for the Senate to fall into line and pass Malcolm Turnbull’s big business windfall ASAP.
Back in January, everything good that happened in the US was touted as evidence for the wonders of company tax cuts. The AFR editorialised about companies like Wal Mart paying higher wages. Senior business figures seized on US pay rises to claim that company tax cuts here would flow straight through into higher wages.
But since then, US wages growth — which was never strong — has slumped, as even the AFR has been forced to acknowledge. You wouldn’t pick it, but business figures and other tax cut spruikers for some reason aren’t touting US wages anymore as evidence of how great tax cuts are. And the most recent general wages data shows that average real wages in the US are completely unchanged year-on-year to June. Another private sector wages growth indicator showed things are even worse: real wages actually fell in the June quarter, leading to a 1.4% fall in real wages over the year.
So if anything, company tax cuts have been associated with a fall in real wages in the US, not a rise. Which, by the way, echoes the UK experience: since 2008, the UK has cut its company tax rate from 30% to 19%. During that time, real wages have fallen in the UK by around 3% in total. In contrast, in Australia real wages have risen over 6% in the same period despite the wage stagnation of recent years.
Just like here, there’s plenty of discussion about why wages aren’t moving in the US despite historically low unemployment. One argument often advanced both in the US and here is that poor productivity growth is holding back wages. That was expertly shot down recently in a Forbes article that noted that if productivity really was a problem for US companies, they wouldn’t be handing back hundreds of billions of dollars in capital to investors via the explosion of share buybacks that Trump’s tax cuts caused, but investing it to improve their businesses. Remember that Australia’s biggest businesses, like ANZ and Rio Tinto and Qantas, are also handing money back via share buybacks even before they get any Turnbull tax windfall.
Based on the US and UK evidence, any claim that company tax cuts lead to higher wages must now be abandoned. Indeed, there may even be a case that, regardless of what economic theory says, company tax cuts are linked to lower wages. And with wage underpayment revelations emerging about once a week, usually but not only in the retail or hospitality sector, the challenge for Australian businesses at the moment is to pay their workers what they’re actually owed by law, let alone any fictional wage rises from future tax cuts.
Company tax cuts *never* help ordinary people. They are completely for the benefit of the rich & powerful.
Does any proponent of company tax cuts seek to explain their alleged benefit by saying they will “trickle down” to wage rises? The trickle down economic rationalists are now under siege.
When our Senate estimates committee asked the BCA to produce evidence of just ONE western economy where wages had risen after company tax cuts, they had to take the question on notice since they had no ready answer. To the best of my knowledge, they have never replied.
When BCA members were surveyed about what they would do with company tax cuts, the leaked results showed an overwhelming majority (83%?) said they would buy back shares or increase share dividends. This is exactly what companies in the US have done, where companies have sought to fortify themselves by indulging in historic levels of share buybacks.
Morrison’s line that taxpayers should forego $80Billion revenue, so that we can give it to companies so they can increase wages, is contradicted AND unproven in the world – an illogical and economically tragic deceit.
A salutory article guys. Geez it must sick being an American or Pom. We need re-regulation of our economy and our industrial relations system. We no longer have a manufacturing industry thanks to globalisation. Now the Libs and their allies in worldwide social injustice want us to follow this aspect of the Anglosphere and reduce our working and living conditions. The facts here speak for themselves. Company tax cuts to fund stock buybacks boosting the value of the company and the returns to shareholders and executives while throwing the workers not even a handful of crumbs. You’d have to be a mug or a complete and utter bloody idiot to fall for this rubbish if you’re an non-executive employee.