Beyond the Budget: How the Tax Cuts and Jobs Act Increases Inequality and Exacerbates Our High-Profit, Low-Wage Economy

June 20, 2018

Many progressives have rightly criticized the Tax Cuts and Jobs Act (TCJA), also known as the Trump tax law, on the grounds that the TCJA will cost over $1.5 trillion in lost revenue over the next decade, at a time when there is already insufficient revenue being generated to meet our country’s pressing needs. Many others have argued, again rightly, that deficits resulting from the tax law will be used to justify cuts to Medicare, Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and other public programs. And others still have correctly assessed that the tax law disproportionately benefits the already wealthy, rather than those with lower income or less wealth.

Progressives are right about the need for revenue and about the general unfairness of the tax law’s distribution—but there is another, powerful line of argument available against the TCJA and conservative tax orthodoxy: It incentivizes powerful corporations and their executives to take home and keep the lion’s share of the winnings, at the expense of corporate investments in higher wages or in innovation and expansion that will lead to jobs. The purpose of “Beyond the Budget: How the Tax Cuts and Jobs Act Increases Inequality and Exacerbates Our High-Profit, Low-Wage Economy” is to outline and describe this so-called “pre-distributional” (also sometimes known as pre-tax or market-based) argument, and connect it to current debates about the tax law and the state of our economy.

Specifically, after providing background on the relationships among corporate stakeholders in today’s high-profit, low-wage economy, this issue brief describes two ways that the TCJA and conservative tax theory incentivize powerful corporations and executives to retain corporate profits for themselves, at the expense of everyone else.

The imbalance of power remains an overriding concern in today’s high-profit, low-wage economy. The Tax Cuts and Jobs Act was passed during a time of enormous and widening inequality—and an enormous and widening imbalance of power across our economy. As progressives continue efforts to argue against the TCJA and for a new vision for the tax code, it is this case—that conservative tax policy increases incentives for the rich and powerful to take even more of the economic pie, without doing nearly enough to grow it—that should be front and center.