The Republican Tax Bill Might Help the Economy (By a Smidgen)
Tyler Cowen has been pushing back for a while against liberal disgust with the Republican tax bill. On Friday he linked to a couple of studies suggesting that low corporate tax rates are linked to both stronger growth and higher wages. “I’ve been reading in this area on and off since the 1980s,” he says, “and I really don’t think these are phony results.”
That may well be true. But as always, the question is “compared to what?” Liberal criticism of the tax bill has been largely motivated by obviously bogus claims for enormous wage gains and huge economic growth. These claims are little short of flat-out lies. But is it possible that a corporate rate cut will eventually produce small wage gains? Sure. And most conventional analyses also predict some economic growth. It’s just very, very small.
There’s also the question of the starting point. If tax rates are very high, cuts can have noticeable effects. If they’re already very low, cuts are unlikely to do much. And corporate taxes in America are already very low:
Cutting corporate taxes from 2 percent of GDP to 1.5 percent of GDP might have some effect that trickles down to the broader economy, but it’s not likely to be more than crumbs. On the other hand, a lot of rich individuals will get considerably richer. I think it’s safe to say that this is the real motivation here.