Lower Business Taxes Means Lower Wages

Henry Liu over at Business Insider explains very well what I've been saying for some time now:  lowering corporate taxes means lower wages.

In recent decades, an intuitive myth has been pushed on the unsuspecting public by Supply Side economists that low taxes encourage corporations, employers and entrepreneurs to create high paying jobs. But the counter-intuitive historical truth is that a progressive income tax regime with over 90% for top bracket incomes actually encouraged management and employers to raise wages. The principle behind this truth is that it is easier to be generous with the government’s money.

In the past, when top corporate income tax rate was at over 50% and personal income tax rate at over 90%, both management and employers had less incentive to maximize net income by cutting cost in the form of wages. Why give the government the money when it could be better spent keeping employees happy?

The Reagan Revolution, as inspired by voodoo Supply Side economics, started a frenzy of income tax rate reduction that invited employers to keep wages low because cost savings from wages would produce profits that employers could keep instead of having it taxed away by high tax rates.

It follows that the low income tax rate regime leads directly to excess profit from stagnant wages which leads to overinvestment because demand could not keep pace with excess profit due to low wages. Say’s Law on “supply creating its own demand”, which Supply Side economists lean on as intellectual premise, holds true only under full employment with good wages, a condition that Supply Side economists conveniently ignore. To keep demand up, workers in a low wage economy are offered easy money in the form of sub-prime debt rather than paying consumers with living wages, creating more phantom profit for the financial sector at the expense of the manufacturing sector. This dysfunctionality eventually led to the debt bubble that burst in 2007 with global dimensions.

In other words, supply-side economics makes it more profitable to business owners to keep wages low and pocket the profits because they're allowed to keep them.  Higher business taxes means it's more profitable to pay more to hire better workers as an investment in the company rather than see those profits taxed and sent to Uncle Sam.

It really is that simple.  Supply-side shenanigans led directly to the bubbles of the last decade as easy credit became the preferred way to "pay" employees, not with actual money.  Businesses profited twice, first off cutting wages, second from expanding credit and left workers in the hole.

That's where we are now.  That's what Reaganomics did to this country:  it loaded up the America worker with so much debt due to 30 plus years of stagnant wages that it's now destroying our economy.

And now this current crop of neo-Hoover Republicans want to "fix" the problem by cutting off the country at its knees.