Report: Tax reform not much help for workers

The tax bill has under-performed on many of projections, including less economic growth and fewer benefits for workers.

Estimates by some groups said that wage increases could result in family incomes increasing by $4,000 to $9,000 per year, but a CRS analysis found no dramatic increase. (Photo: Bigstock)

A new report from the Congressional Research Service (CRS) is drawing attention for its conclusion that the recent tax cuts passed by Congress will not add much economic growth in the U.S. The report also questioned other selling points of the tax reform, such as the notion it would improve workers’ wages and prompt reinvestment in and add jobs.

The study focuses on the 2017 Tax Cuts and Jobs Act, which was championed by President Donald Trump and passed with the support of Republicans in Congress. It enacted many provisions that its advocates described as pro-business, including a corporate tax cut, revised business taxes and scaled back taxes on equipment and estates. It also cut taxes for individuals, but most of those cuts are scheduled to expire after 2025, in contrast to the permanent tax cuts for corporations.

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The study said the projections of the bill included:

The CRS report said the tax bill has under-performed on many of these projections, with less economic growth, fewer benefits for workers, and less repatriation of income held overseas by U.S. businesses.

Workers’ wages grew, but not by much

When it comes to benefits for workers, the report finds the tax reform had less of an impact than anticipated. As the bill was debated, the researchers point out, many critics asked why it was designed to give wealthier individuals bigger tax breaks than other Americans—and the response was that this would result in more business growth, more hiring, and increased wages by business owners.

Estimates by some groups said that wage increases could result in family incomes increasing by $4,000 to $9,000 per year. However, the CRS analysis found no dramatic increase in wages in the first year of the new tax regime.

“There is no indication of a surge in wages in 2018 either compared to history or relative to GDP growth. This finding is consistent with the CBO projection of a modest effect,” the report said. “The Department of Labor reports that average weekly wages of production and nonsupervisory workers were $742 in 2017 and $766 in 2018. Wages, assuming full-time work, increased by $1,248 annually. But this number must account for inflation and growth that would otherwise have occurred regardless of the tax change.”

With all factors accounted for, the report concludes, real wages increased by 1.2 percent. “This growth is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates,” the report said.

Worker bonuses—mostly for show?

The report also looks at worker bonuses, which some companies gave after the tax cut was enacted. The CRS report calculated the overall impact of these bonuses for workers. It noted that the total amount of bonuses attributed to the tax reform was $4.4 billion. Again, the researchers found the result was underwhelming:

“With US employment of 157 million, this [amounted to] $28 per worker. This amount is 2 percent to 3 percent of the corporate tax cut, and a smaller share of repatriated funds,” the report said. “The bonus announcements could have reflected a desire to pay bonuses when they would be deducted at 35 percent rather than 21 percent (in late 2017 for firms with calendar tax years but in 2018 for firms with different tax years). Worker bonuses could also be a result of a tight labor market and attributed to the tax cut as a public relations move.”

The report also noted that much of the tax benefit to corporations has been used for stock buybacks—estimates are that companies spent $1 trillion on buybacks by the end of 2018.

The full report, which also addresses the tax reform’s impact on revenues, individual income taxes, and the corporate tax rate, is available on the CRS’s website.

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