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McCain’s Trickle-Down Economics

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"McCain’s Trickle-Down Economics"

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Our guest bloggers are Robert Gordon and James Kvaal, senior fellows at the Center for American Progress Action Fund.

Sen. John McCain calls his new economic policy Jobs for America, but its centerpiece remains help for corporations, not workers. Apparently McCain’s theory is that cutting corporate taxes by $175 billion will (1) make American corporations more competitive, which (2) will help American workers. But — as Gene Sperling and Jared Bernstein pointed out at McCain University last week — both of these steps are on shaky ground.

First, U.S. corporate taxes are in line with the rest of the world’s, according to a recent U.S. Treasury report. The effective tax rate on equipment financed by equity is 24 percent, the same as the G-7 average. The rate on equipment financed by debt is minus 46 percent, meaning that the government actually subsidizes these investments rather than taxing them.

Second, corporate gains are not trickling down to workers. Corporate profits are now near all-time highs: In 2005, they exceeded 13 percent of the economy for the first time since 1966. But the median household income fell by $963 between 2000 and 2006, even after inflation. And the long-term trend suggests that profits and earnings often don’t move together: from 1997 to 1999, earnings rose while corporate profits fell, and from 2000 to 2004, the reverse happened.

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McCain’s economic policy is aimed at promoting American businesses. But it’s workers, not companies, who are struggling in the Bush economy.

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