But many economists, including the government’s own nonpartisan scorekeepers, dispute the notion that workers will get much of the gains from corporate tax reform, which President Trump signed into law on Friday. They argue that shareholders, not workers, stand to benefit the most. Recent history suggests the same, with the wealthy the primary beneficiaries of soaring corporate earnings and a booming market.
Contrary to companies’ stated reasoning, many of those wage increases and bonuses would have happened anyway, it seems, given how low the unemployment rate is right now. Though wage growth has been in a long-term slump, paychecks are finally rising as the jobless rate has fallen below 5 percent and stayed there, with earnings growing the fastest for the lowest-wage workers. Plus, 18 states are raising their minimum wages in 2018, requiring businesses to pay out an estimated $5 billion more to 4.5 million workers.
Given those dynamics, businesses are likely using the tax cuts in part as a way to advertise pay increases that were already planned and to curry favor with the Trump administration and Republicans on the Hill. To wit: Wells Fargo waffled on whether its pay increases had anything to do with tax reform, first saying they did not and then correcting the record and saying they did. “Minimum pay is a topic that we continue to review as part of our efforts to attract and retain talent, and we have been on a path to increasing the minimum hourly rate,” a spokesman told The Los Angeles Times.
More broadly, while economic evidence suggests that cutting taxes on corporations does lead to some trickle-down benefits for workers, it also suggests that the sums are smaller than the White House has projected and would likely take some time to show up in paychecks. “These raises have zero economic connection with the tax cuts,” said Josh Bivens, an economist at the Economic Policy Institute, a left-of-center think tank. “We know this because the theory linking cuts to wage gains requires other mechanisms to fire first—mainly the rise in capital investment and productivity growth,” which would “permanently reset salaries at higher levels, not get firms to bestow one-time bonuses.” Businesses would need to use their additional funds to invest in machinery, equipment, and research and development, making their workers more productive, and then paying those workers for that additional productivity, in other words. Of course, these companies could claim they are issuing payouts now in anticipation of that chain of events, but the real process would take some time.
Still, the Trump administration has argued that workers would get most of the benefit of the corporate tax cuts, through mechanisms like the one Bivens outlined. But while it expects workers to get 70 percent of the savings from tax reform, most economists argue they would get something like a quarter. That includes the Joint Committee on Taxation, the Congressional Budget Office, and the Treasury—three government sources of dependable economic projections. Workers very well might see some earnings gains because of the tax bill, but in all likelihood they will not be on the scale that the White House is talking about.