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Busting the tax stimulus myth

Republicans claim their corporate tax cuts will stimulate investment to create jobs and raise wages:

“Big US companies have been piling up cash for years, but they’ve spent little of it on buying equipment and raising wages and other things to grow the economy. Republicans say they know how to fix this: Give companies even more money by cutting their taxes.”

Baloney. That’s as phony as the GOP tax bill’s “middle class tax cuts.” An investment banker responds,

“‘There is more than enough cash for investment,’ said Daniel Alpert, managing partner at investment bank Westwood Capital. The tax bill is trying ‘to solve a problem that doesn’t exist.'”

Independent economists are virtually unanimous about what will happen to that cash:

“[C]ompanies are more likely to use their tax savings to buy back their own stock and send dividend checks to investors than to expand operations … “

because

“the main reason companies haven’t been investing has nothing to do with incentives. It’s because they had invested too much in previous years. Even before the 2008 financial crisis, the world had too much of nearly everything — raw materials like steel and oil , workers, factories to employ them and consumer products. That’s why inflation has stayed low …. Then the Chinese government encouraged even more production with a big stimulus program in the years after the crisis, and the glut got worse.”

And history backs them up:

“Corporate America has been spending trillions to buy  their own stock in recent years …. If history is any guide, the tax overhaul will only fuel more buybacks. The bill would offer an incentive to companies to return cash they’ve kept overseas …. The last time the federal government offered such a discount … companies tended to use the money to buy back their own shares, not to hire or expand operations. A 2011 Congressional Research Service report found that the tax break ‘did not increase domestic investment or employment.'”

Read entire article here.

Image: What Mount Everest would look like made of Republican tax cut deficits


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