Tax cuts, particularly those targeted at corporations and high earners, are often sold as a means to boost economic growth, increase wages, and spur investment in job-creating projects. However, history has repeatedly shown that the promised benefits rarely materialize for the average worker. Instead, the majority of the financial windfall ends up enriching corporate executives and shareholders through stock buybacks, while wages remain stagnant, and economic inequality worsens.
Corporate Tax Cuts: Who Really Benefits?
The 2017 Tax Cuts and Jobs Act (TCJA) reduced the corporate tax rate from 35% to 21%, a move that was promoted as a way to boost investment, raise wages, and create jobs. The rationale was that with lower tax burdens, companies would reinvest their savings into expansion, innovation, and their workforce. But in reality, much of the tax savings went elsewhere.
Corporations used the extra cash primarily for stock buybacks—an artificial method of inflating share prices, benefiting executives and wealthy shareholders. In the third quarter of 2018 alone, S&P 500 companies repurchased nearly $200 billion worth of their own stock. By the end of the year, total stock buybacks across the economy were projected to exceed $1 trillion, shattering records.
While Republicans championed the tax cuts as a way to boost worker wages, the results told a different story. Some companies did hand out modest one-time bonuses, but these amounted to a fraction of the estimated $200 billion corporations saved in federal taxes. Wages did see a slight uptick, but the increases fell far short of what was promised. Meanwhile, corporate profits surged at an annualized rate of 6.5%, and financial giants like JPMorgan Chase and Citigroup reported double-digit earnings growth.
Wage Stagnation: The Broken Promise
Despite decades of tax cuts, wages for American workers have remained largely stagnant when adjusted for inflation. In 1973, the median full-time male worker earned $53,294 (adjusted for inflation). By 2014, that figure had dropped to $50,383—meaning today’s workers are earning less in real terms than their counterparts over four decades ago.
Even though corporate profits have soared since the Great Recession ended in 2009, growing at an annualized rate of 6.5%, those gains have not translated into higher wages for most workers. Instead, any wage increases have disproportionately benefited the highest-paid tier of employees, widening the gap between the wealthy and the working class.
The Waning Effect on Economic Growth
Initially, the TCJA spurred a brief surge in capital investment at the start of 2018. However, that momentum quickly faded, with investment growth slowing sharply by the third quarter. Many economists, including those at the Federal Reserve, cut their growth forecasts for 2019, citing the diminishing impact of the tax cuts.
This trend is not unique to the TCJA. Historically, large-scale tax cuts have failed to generate sustained economic growth. The idea that reducing taxes for corporations and the wealthy will “trickle down” to benefit the broader economy has been repeatedly debunked by real-world data. The Reagan tax cuts of the 1980s, the Bush tax cuts of the early 2000s, and now the Trump tax cuts have all followed a similar pattern: corporations and high earners reap massive financial benefits, but little of that wealth makes its way to the middle class or working poor.
A Better Approach to Economic Growth
If tax cuts for corporations don’t work as advertised, what does? Research suggests that economic growth is more effectively driven by policies that increase consumer demand, strengthen worker bargaining power, and invest in public infrastructure and education.
Key alternatives to ineffective corporate tax cuts include:
The evidence is clear: corporate tax cuts do not lead to widespread economic benefits. Instead, they disproportionately benefit wealthy shareholders while leaving worker wages stagnant. The short-term boost in stock buybacks may enrich investors, but it does little to create long-term economic stability or opportunity for the average American.
If policymakers truly want to create a stronger economy, they should focus on investments that support workers, consumers, and public infrastructure—rather than handing out tax breaks to corporations that continue to prioritize profits over people.
Corporate Tax Cuts: Who Really Benefits?
The 2017 Tax Cuts and Jobs Act (TCJA) reduced the corporate tax rate from 35% to 21%, a move that was promoted as a way to boost investment, raise wages, and create jobs. The rationale was that with lower tax burdens, companies would reinvest their savings into expansion, innovation, and their workforce. But in reality, much of the tax savings went elsewhere.
Corporations used the extra cash primarily for stock buybacks—an artificial method of inflating share prices, benefiting executives and wealthy shareholders. In the third quarter of 2018 alone, S&P 500 companies repurchased nearly $200 billion worth of their own stock. By the end of the year, total stock buybacks across the economy were projected to exceed $1 trillion, shattering records.
While Republicans championed the tax cuts as a way to boost worker wages, the results told a different story. Some companies did hand out modest one-time bonuses, but these amounted to a fraction of the estimated $200 billion corporations saved in federal taxes. Wages did see a slight uptick, but the increases fell far short of what was promised. Meanwhile, corporate profits surged at an annualized rate of 6.5%, and financial giants like JPMorgan Chase and Citigroup reported double-digit earnings growth.
Wage Stagnation: The Broken Promise
Despite decades of tax cuts, wages for American workers have remained largely stagnant when adjusted for inflation. In 1973, the median full-time male worker earned $53,294 (adjusted for inflation). By 2014, that figure had dropped to $50,383—meaning today’s workers are earning less in real terms than their counterparts over four decades ago.
Even though corporate profits have soared since the Great Recession ended in 2009, growing at an annualized rate of 6.5%, those gains have not translated into higher wages for most workers. Instead, any wage increases have disproportionately benefited the highest-paid tier of employees, widening the gap between the wealthy and the working class.
The Waning Effect on Economic Growth
Initially, the TCJA spurred a brief surge in capital investment at the start of 2018. However, that momentum quickly faded, with investment growth slowing sharply by the third quarter. Many economists, including those at the Federal Reserve, cut their growth forecasts for 2019, citing the diminishing impact of the tax cuts.
This trend is not unique to the TCJA. Historically, large-scale tax cuts have failed to generate sustained economic growth. The idea that reducing taxes for corporations and the wealthy will “trickle down” to benefit the broader economy has been repeatedly debunked by real-world data. The Reagan tax cuts of the 1980s, the Bush tax cuts of the early 2000s, and now the Trump tax cuts have all followed a similar pattern: corporations and high earners reap massive financial benefits, but little of that wealth makes its way to the middle class or working poor.
A Better Approach to Economic Growth
If tax cuts for corporations don’t work as advertised, what does? Research suggests that economic growth is more effectively driven by policies that increase consumer demand, strengthen worker bargaining power, and invest in public infrastructure and education.
Key alternatives to ineffective corporate tax cuts include:
- Raising the minimum wage: Higher wages increase consumer spending, driving demand for goods and services.
- Strengthening labor protections: Unions and worker protections help ensure fair wages and working conditions.
- Investing in public infrastructure: Improvements in transportation, broadband access, and clean energy create jobs and stimulate long-term economic growth.
- Expanding access to education and job training: A well-educated and highly skilled workforce is essential for maintaining economic competitiveness.
The evidence is clear: corporate tax cuts do not lead to widespread economic benefits. Instead, they disproportionately benefit wealthy shareholders while leaving worker wages stagnant. The short-term boost in stock buybacks may enrich investors, but it does little to create long-term economic stability or opportunity for the average American.
If policymakers truly want to create a stronger economy, they should focus on investments that support workers, consumers, and public infrastructure—rather than handing out tax breaks to corporations that continue to prioritize profits over people.
