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Congress' tax reform bait-and-switch

Congress' tax reform bait-and-switch
© Greg Nash

Americans were promised an avalanche of jobs and tsunami of wage growth if tax reform was passed. However, nearly five months after passage of the tax bill Americans are left waiting for those jobs and wage growth while the national debt and stock buybacks keep piling up.

What do you do as a member of Congress if you promoted and voted for the tax bill that promised jobs and wage growth but still haven’t occurred in a meaningful way? You sell the American people on something else — stock buybacks.

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While jobs and wages growth were the justification cited for a massive increase in the debt burden placed on the American people, that is no longer the focus of the supporters of the tax bill. Suddenly, stock buybacks are the economic elixir Americans should have been seeking all along.

 

In the recent “Tax Facts Tuesday” put out by the majority in control of the House Committee on Ways and Means, stock buybacks were extolled as something every American should be grateful for. The document title sums up the sales job, “Stock Buybacks and Investment: Good News for American Workers.”

First, they refer to promised increases in investment, because that actually hasn’t happened yet. Second, I guess I’d be forced to sell stock buybacks if what I promised wasn’t occurring. Just how many stock buybacks are we talking about? Hundreds of billions.

Apple alone recently announced $100 billion in stock buybacks on top of its $23.5 billion in first quarter stock buybacks. JPMorgan Chase estimates that firms will buyback at least $800 billion in shares in 2018.

Not only is that an astounding amount of money going to stock buybacks instead of the hiring or wage growth Americans were promised, it is 50-percent more than 2017.

So, tax reform was passed and share buybacks are now expected to increase 50 percent. It sure would be nice if instead, employment and wage growth increased 50 percent in 2018; I wouldn’t hold your breath for that.

Those who sold the tax bill to the American people are now treating the American people like children. They are like the parents who cajole their child into doing something in return for a goody, and then when they can't deliver, try to pawn off something else as being much more valuable. It is insulting.

It would be nice if rather than insulting the intelligence of the American people, promoters of the tax bill faced the reality that companies aren’t hiring in droves or paying those promised $4,000 bonuses and just fixed the tax bill.

How? Simple: Put tax rates back to where they were for companies that aren’t increasing hiring and increasing wages. If the purpose of cutting corporate tax rates was to provide companies an incentive to hire and increase wages, then fix the mess they passed and tie each company’s tax rate to each company’s rate of job creation and wage growth.

It is also better than some Democratic proposals, which would merely roll back the tax cuts. That wouldn’t create incentives for companies to increase hiring or wages.

The closest bill I’ve seen to tying tax rates paid by companies to employment and wages is Sen. Sherrod BrownSherrod Campbell BrownLawmakers, Wall Street shrug off Trump's escalating Fed attacks The Hill's Morning Report — Presented by PhRMA — Dem victories in `18 will not calm party turbulence Election Countdown: Minnesota Dems worry Ellison allegations could cost them key race | Dems struggle to mobilize Latino voters | Takeaways from Tennessee Senate debate | Poll puts Cruz up 9 in Texas MORE’s (D-Ohio) “Patriot Employer Tax Credit Act," although more could be done in the bill to tie company tax rates to company job creation and wage growth.

Both parties need to get to know the concept of return on investment. If the American people are going to be saddled with a massive increase in debt, they should at least be guaranteed the return on the investment they were promised: increased job and wage growth.

It is time both parties in Congress finally tied policy to results, not rhetoric.

Chris Macke is the founder of Solutionomics, an economic think tank. He has advised the U.S. Federal Reserve by providing market updates and implications of monetary policy changes on asset valuations and market distortions, and he's a contributor to the Fed Beige Book. Find him on Twitter: @solutionomics.