Tax reform means wage increases ?

[RWG1950]

I must be missing something with regard to the basic concept of these tax changes being urgently pushed. "We think as a result of lowering business taxes, wages will go up" . Just wondering what these two have to do with each other ?

Seems to me, if enough demand is present, companies will expand plant, buy equipment & hire and compensate more people almost regardless of the tax and interest rate climate.

If demand is lacking, largely because of demographic changes (see Japan over the last 30 years), why would such tax cut stimulation be expected to flow to anywhere other than directly to the business owner's bottom line ? Where is the incentive to build plant, buy equipment & hire and give raises to people ? No one is in business to lose money.
And wouldn't this apply about as equally to a large publicly traded corporation as it would to a sole proprietorship ?

This legislation seems kinda like trying to push on a piece of string - but a piece of string can only be pulled .

Hopefully someone out there can straighten me out on why we need to make this trillion dollar gift to the 1 percenters .

[Snaggletooth]

Jobs may come or they may not

I don't see any co-orelation between reduced rates for the wealthy and the creation of jobs. If there is an economic need to create jobs, they will be created anyway. Robin Hood in reverse

I believe your post, and some other recent ones, are bordering too close to politics, maybe even partisan politics. We're not supposed to be doing that on this board. Expect scrutiny for your post, and my reply as well. The moderators have been known to delete when we have entered the political arena too far.

[kathyc2]

It should have a small short term affect due to the fact that the "cuts" are financed by deficits. The deficits will have more cash in the economy and slightly raise demand. The normal wage earner will spend the extra 20 or so from their paycheck, increasing demand.

IMO very short sighted. Downright scary what effect AI will have on the labor market over the next 20 or 50 years. And since it has a tax preference of technology over workers (immediate equipment expensing) the payback time for replacing workers with machines shortens.

If you want to really freak out on what this all means down the road, do some reading on paygo rules.

IMO if they think the C corp rate is too high, they should have reduced it in 2003 rather than using the tax cuts to give a preferred tax rate for dividends.

[ATSMAN]

I don't see any co-orelation between reduced rates for the wealthy and the creation of jobs. If there is an economic need to create jobs, they will be created anyway. Robin Hood in reverse

I believe your post, and some other recent ones, are bordering too close to politics, maybe even partisan politics. We're not supposed to be doing that on this board. Expect scrutiny for your post, and my reply as well. The moderators have been known to delete when we have entered the political arena too far.

>> I don't see any co-orelation between reduced rates for the wealthy and the creation of jobs. If there is an economic need to create jobs, they will be created anyway.

You are correct BUT unfortunately many Americans led by the Republican BS believe the reverse. They are of the opinion that corporations with their newly found tax savings will hire more, pay more rather than bank the savings or buy back company stock!

[dtlee]

The main way that wages will go up with a tax cut in an already overheated economy is competition for employees. They generally consider "full employment" to coincide with an unemployment rate of around 5%. We are now teetering on 4% which is forcing competition for employees that has not been seen in quite a few years. If you give corporations a significant tax cut, they will likely attempt to expand operations and increase production. To do that, they will generally need more employees. When bidding for employees increases, wages generally increase. Combine that with the trend to increase minimum wage levels (e.g., New York State will basically increase the minimum wage by 10% in a few weeks) and you will see an impact on employees who earn above minimum wage as well (it becomes difficult to justify paying an experienced employee the same as a new hire with no experience). All of this combined with a likely increase in take-home pay (at the cost of a reduced refund later) due to the structure of the new law and this will result in greater consumer spending (leading many seasonal retail employers to retain more employees after the holiday season).

Unfortunately, this will drive up the cost of operations and lead to significant price increases as each layer attempts to maintain their prior profit margins despite increased costs. Whether "real" wages will increase in this scenario is highly dependent on how quickly companies are able to increase the prices of their goods and services to be in line with their increased costs.

[kathyc2]

Generally true economic concepts. However, outsourcing and robotics will also come into play.

[dtlee]

Generally true economic concepts. However, outsourcing and robotics will also come into play.

Exactly true with regard to lower skilled workers. The point is that it is initially quicker to hire employees than introduce replacement technologies. The replacement technologies will come and at that point, employees will be let go, but it will take a while for overall wages to decline in response (especially with ever increasing minimums). More likely, the more adept workers will be retained in other positions at the higher wage (with increased responsibilities) and the less capable will be let go, (perhaps nearly permanently). It is likely that the government will need to focus very heavily on analyzing unemployment figures at different skill levels to evaluate the economy going forward.

With regard to more skilled workers (technicians, technologists, managers, supervisors, planners) and professionals, the increased wages will not be as easily impacted by replacement technologies, though many of the skilled worker roles can easily be moved offshore. However, the improvements in the economy have recently been worldwide and there is increased competition there as well. In my last job, our chargeback rate for a domestic developer on a project was nearly $80 an hour (including overhead). If we wanted to meet our budget, we could simply choose a Mumbai developer instead at a rate (including overhead) of $7.95 (not even the minimum wage in that location at the time). Those days are gone, but there is still a wide disparity of cost which still makes offshore resources an attractive alternative.

The focus we are seeing here in this area is that many workers are now shying away from the trades and eschewing jobs involving heavy labor (which are less likely to be as quickly impacted by technology) in favor of similarly paying jobs in a fast food or retail establishment where the likelihood of being replaced by a faster and cheaper machine is more likely (since those firms are concentrating on technology as a means of survival). I suspect that this pattern will be more common elsewhere as we attempt ensure a "living wage" minimum for most jobs.

If there is any point of this response it is that there will be a surge in wages and a dangerous decline in unemployment that will overheat the economy to the point where inflation (which has been virtually nonexistent in recent years) erodes much of the wage gains that will be seen. Then, in response to the increased wages, many employees will be forced to seek other employment as the jobs which are able to be automated disappear. Whether or not this increase in prices and uneven distribution of unemployment leads to economic problems or not is highly dependent on how well we can upgrade workers to be capable of the more demanding jobs. Certainly, inflation will hit the unemployed and underemployed as much as it does those with more skills and those working multiple jobs.

I really don't believe that a tax cut to "help" the economy actually makes sense when unemployment is at 4.1% but I am obviously in the distinct minority.

[Twin Turbo Z]

I had just entered the workforce when Reagan was elected. Sit back and watch the economy grow, youngsters.

[kathyc2]

I had just entered the workforce when Reagan was elected. Sit back and watch the economy grow, youngsters.

I just don't see where data bears that out. Obviously there are other things than tax policy that affect wage growth, but the period of 1997-2000 had the higher year over year average wage growth. That was the tech boom, but it was also a period after tax increases were passed.

https://www.ssa.gov/oact/cola/awidevelop.html