The ink was barely dry on the GOP tax bill when a New York Post headline declared it’s “already benefiting American workers.” And a Blomberg reporter pointed to a New York developer who decided to build a Las Vegas resort after the law was passed. But like Alaskans learned a few years after the state enacted Senate Bill 21, long-term economics is much more complicated than the question of corporate taxes.
Former Gov. Sean Parnell signed Alaska’s new oil production tax law in May 2013. Less than a month later, he referred to the Greater Moose’s Tooth project as proof of new investments by ConocoPhillips. Not only had the company been planning for that for three years, the 2014 collapse crash in oil prices led them to reduce oil drilling and lay off thousands of workers.
Now it’s AT&T’s turn to be the poster child for the benefits of lower business taxes. The Post reported they added $1 billion to its capital spending plan after Congress passed the new law. That’s not much compared to 2012 when, without any new tax incentive, they announced a $14 billion plan to improve its wireless and broadband networks.
The Post also touted the $1,000 Christmas bonus AT&T gave to 200,000 workers. What the they didn’t mention was that 600 other workers got their pink slips a week earlier. Or that the employees’ union had been seeking $4,000 in wage increases which would have given employees a share of the company’s tax savings year after year instead of just once.
In the Bloomberg story, one specific tax provision that changed is credited with jump starting the Las Vegas casino project. Full expensing allows businesses to deduct the cost of capital investments immediately rather than on a multi-year depreciation schedule. This is the worst part of the new law according to New York Times columnist Bret Stephens. He believes it’ll encourage over-investment followed, in some cases, by bankruptcy.
These two examples aren’t indicative of how every business will respond to the new tax structure. Most will mix new investments dividend payouts or stock repurchases. Such shareholder rewards will deliver less than a trickle to the average American wage earner.
Still, the non-partisan but liberal leaning Tax Policy Center estimates 90 percent of the middle class will pay $1,000 less in taxes next year. Many will happily spike consumer spending with theirs just like people did after the Bush tax cuts 15 years ago.
And yet, like the oil price plunge in 2014, those happy days came to an abrupt end when the mortgage crisis hit in 2008. And just as few economists foresaw that disaster, none can guarantee the new tax law will prevent a reversal of the economic growth predicted by Republicans.
As I stated a few weeks ago, I don’t share their optimism. One reason is because the way growth is measured today is a skeletal image of past eras.
Take the economic boom from the 1950s. Manufacturing and construction were the prime drivers behind an expansion that averaged 3.5 percent annually. Today, those sectors are overshadowed by financial, information and professional services, and any investment they make won’t translate to the same kind of gains the middle class enjoyed 60 years ago.
An equally important comparison to that decade is that the growth was sustained despite a corporate tax of 50 percent on profits exceeding $25,000 (about $215,000 in 2017). Not only was it higher, a business could reinvest enough to lower it to 25 percent. Now, for the first time since the 1930s, the corporate tax rate is flat. How that will affect investment decisions remains to be seen
Finally, since 2002, after-tax profits corporate grew three times faster than over the prior 50 years. But that hasn’t stimulated the kind of economic growth the GOP now expects by letting businesses take more of their earnings to the bank.
Like Parnell’s premature boasting after signing SB 21, declarations that the new tax law is already working is wishful speculation. And the reporters who cherry pick the evidence to make the case aren’t any smarter than a sportswriter who picks the Super Bowl winner based on a team’s preseason performance.
• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector. He contributes a regular “My Turn” to the Juneau Empire. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.
