Taxes And Wages

The claim by many Republicans that cutting taxes on businesses will lead to wage growth is completely absurd. They are using this claim to promote enormous tax cut bills in the House and Senate, which would benefit businesses and the wealthiest people in America more than anyone else.

In fact, companies pay employees based on labor market conditions, competition and their calculations of what jobs are worth. None of these things has anything to do with the cash a company has on hand or whether its tax rates are higher or lower than they have been.

No employee is going to be worth more to an organization and therefore receive greater compensation based on operating expenses and revenue. Operating expenses have absolutely no relationship to the value of employees or the amounts they are paid.  Republicans arguing that a tax cut for businesses willl benefit employees by causing employers to start paying them more are ignoring this basic fact of business economics. They are trying to sell voodoo economics.

Companies have enjoyed very favorable tax  and borrowing rates for years, and as the economy has rebounded since the Great Recession, cash has been piling up on corporate balance sheets. This increase in cash on hand has not caused companies to hire more employees or pay employees more.  For decades, while the wealth and net worth of business owners has exploded, wages have remained largely flat, with a very slight increase in the last two years.

Simply put, companies have been hiring robustly because they  are able to sell what they produce — there is a healthy demand for the goods and services produced by organizations. Robust hiring has led to low unemployment, which has increased competition for talent. Those factors have caused wage rates to tick up slightly.

Reducing tax expense simply enables companies to be more profitable and pay lower taxes than they paid before. Labor is one of the greatest expenses on a company‘s books, and no company is going to hire people or pay them more if it doesn’t need to. Companies that overpay their employees are not meeting the fiduciary responsibility to their shareholders.

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