June 15, 2018
In a Washington Post analysis, Philip Bump assessed the evidence as to whether the Republican tax cuts passed last year are leading to the promised wage growth. He notes promises from Donald Trump about how the tax cut would lead to more hiring, which would push up wages.
While this is in fact what Trump promised on many occasions, this is likely due to the fact he didn’t understand the logic of his own tax cut. His economists justified the promised wage gains not by any immediate hiring effect, but rather by the effect the tax cut would have on investment. The tax cut was supposed to induce a flood of new investment. This would, in turn, lead to more rapid productivity growth. The big wage dividend would come from the workers’ share of this increased productivity.
For this reason, the key factor to watch at this point is investment, not month-to-month wage movements. By this measure, the tax cut is striking out badly. There is zero evidence of any uptick in investment, or investment plans, over the pre-tax cut pace.
Comments