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Tax-Reform Bill Is No Balm For The Middle Class

Dec 17, 2017 06:30AM ● By Theresa Gilman

Tax Reform

(Editor's Note: the following information was provided by UMass Lowell.)

“There’s no trickle down, there’s just a gusher to the top.”
That’s UMass Lowell Economics Prof. William Lazonick’s take on what will happen if the tax-reform bill being debated in the committee ultimately makes its way to President Trump’s desk.
Lazonick’s research has long sounded the alarm on the practice of stock buybacks, which allows corporations to use their profits to repurchase their own shares. That increases stock prices, which can drive up executives’ pay and the gains of stock-market professionals but all of that comes at the expense of new job creation and investing in manufacturing plants, research and product development, he says.
Lazonick believes the same dynamic will be set in motion if the corporate tax rate is slashed from 35 percent to 20 percent as proposed in the bill, which Trump wants to sign into law by Christmas.
“Corporations will just use the money for more stock buybacks and higher dividends,” he said. “Corporate raiders, who call themselves ‘shareholder activists,’ pressure companies to drive up share prices through stock buybacks, which increasingly are funded by borrowing money and cutting costs – either by sending American jobs and manufacturing facilities overseas or by laying off workers and cutting employee pay and benefits. They then sell shares at the inflated price.”
These practices have their roots in the policies of the Reagan administration, which created a lax regulatory atmosphere, according to Lazonick.
“In this deregulated environment, the people who are extracting the most value aren’t the ones who are creating it,” he said. “Companies are cutting pensions and benefits, offshoring manufacturing jobs and laying off older workers, destroying the middle class in the process.”
Lazonick is co-director of UMass Lowell’s Center for Industrial Competitiveness. His research focuses on the social conditions behind innovation and economic development in advanced and emerging economies. 

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