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Commentary: US tax cuts a hot potato average Americans are stuck with

4 6 58
20.11.2017

FORT COLLINS, Colorado: Many children have played hot potato, a game in which they pass a potato to other children quickly so they don’t get stuck with it when the music stops.

Taxes are like that potato. No one likes paying them; everyone tries to pass them to others. The game of hot potato sheds some light on the debate over the proposed US tax cutting plans, particularly when it comes to companies.

The House just passed its tax cut bill. It would give about two-thirds of roughly US$1.5 trillion in net tax cuts over the next decade to businesses, mainly by lowering the corporate income tax rate to 20 per cent from 35 per cent.

That puts a lot of money on the table. About US$100 billion in US corporate profits would be retained by companies rather than paid to the government each year.

Treasury Secretary Steve Mnuchin has claimed that most of this tax savings would go to workers, in the form of higher wages, in line with President Donald Trump’s argument that the plan would benefit the middle class.

With the help of hot potatoes, let me explain why he’s wrong.

WHY WORKERS WON’T GAIN

There are two ways a corporate income tax cut can trickle down to workers’ pockets: Directly through higher wages or indirectly via lower prices at stores selling the things they buy.

Mnuchin contends that workers currently bear 70 per cent of the corporate tax burden – or get stuck with 70 per cent of the corporate tax hot potato. So, a tax cut would mean that companies pass much of their tax benefits to their employees by paying them more or by........

© Channel NewsAsia