The Wall Street Journal has to fill its pages somehow, and one strategy its employed for the past year is to pretend that there is a serious debate over whether cutting taxes on corporations helps corporations or its workers.
You can’t blame the Republican Party for arguing that cutting the top corporate rate from 35% to 21% is about freeing corporations to build shiny new factories or raising wages, rather than growing their bottom line. After all, they have to convince that the majority of Americans, who work for a living, that this is good for them, too. Nor can you blame large corporations leveraging their PR machines to make big shows of linking tax reform to their issuing wage increases and and small, one-time bonuses—Corporate America doesn’t want the GOP to take a shellacking in the polls in November for spending $2.2 trillion on the very small share of Americans who own most of the stock in these suddenly much wealthier corporations.
But the Journal, and the New York Times, should know better. There’s a journalistic saying, attributed to several different long-dead editors, that goes: “"When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.” The Journal’s analysis that the vast majority of Corporate America’s lower tax bill is being retained as earings or spent on share buybacks, rather than new plants and equipment or higher wages, is a classic dog bites man story—that is, it shouldn’t be news to anyone at all.
The best evidence for this is the stock market itself, which rose roughly 20% last year on the promise of deregulation and tax cuts, and analysts are expecting S&P 500 earnings to rise a lusty 19% in 2018, which has kept markets in the black despite growing volatility and skepticism over the U.S. government’s long-term fiscal health. Companies don’t grow their profits 20% by spending more on worker salaries.
The other way for companies to grow their earnings-per-share, rather than just pocketing the tax savings is to buy back their own stock. And the Journal’s analysis, published Thursday, describes just how enthusiastically Corporate America is employing this strategy. “Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year,” it reports. The Journal also points out that the stock buyback boom is being driven in part by the ability of multinational corporations to pay dividends and buyback stock with profits earned overseas, after paying a one-time repatriation tax on the money held abroad at the time of the bills passage.
But at the end of the day, it’s simple common sense that a tax cut on business profits will almost exclusively help make the small share of Americans who earn their living from business ownership richer. The Republican Party has an army of economists who concoct theories about how low corporate taxes spur business investment or enable companies to pay their workers more, and the Democratic Party has its own army of PhDs who say just the opposite. This feeds into the media’s desire to rely on experts to tell the public what the one, true, optimal public policy should be.
This is not to say that there aren’t things the government can do to make the majority of people better off, but in most instances politics is just the simple, but vicious, practice of fighting over limited resources. The Republican Party is funded by owners of business, who not coincidentally have adopted the ideology that making a lot of money is the best thing they can do for the society at large. Of course it wants to pass laws that lowers the burden that business owners bear to fund the government.
There’s nothing wrong with this, it’s how democracy works. But it’s a fairly simple story, that if told straight, would leave very little for the Journal and Times to sell ads against.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.