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Economist: “The average family doesn’t really get a whole lot” from $1.46 trillion tax overhaul

Dec 18, 2017

The U.S. House and Senate have cobbled together their $1.46 trillion tax overhaul. 

Now they're trying to convince the public this plan is going to help them. Polls have found that fewer than 35% of Americans approve of the overhaul.

Charley Ballard, a Michigan State University economics professor, joined Stateside today to share an economist's take on the tax bill.

Listen to the full conversation above, or see highlights below.

On whether the tax reform will be a boon for the middle class

“Not particularly. The vast majority of the benefits of this go to very wealthy and very high income individuals.

"The big thing is a great, big reduction in the corporation tax rate and so, who’s that going to benefit? That’s going to benefit the people who own a lot of stock. The average family doesn’t really get a whole lot.”

His thoughts on the trickle-down approach the Republicans are taking

“Well, the evidence is that trickle down doesn’t trickle down very much.

"These are benefits that are targeted at the very wealthy and the very high-income, and at people who own a lot of corporation stock. 

"You know, indirectly I think there could be some effect. But I think the effect is likely to be small, at least anytime in the foreseeable future. In fact, I’m less optimistic – I’ve done some research on this sort of thing over the years – and I’m less optimistic now about this kind of policy than I would have been 30 years ago… because of changes in the corporate culture.

"It used to be, back in the 20th century, if a corporation, if a CEO got some extra money, he – and, of course, he is the right noun because it was almost all men at that time and still largely men – the executives would... think about investing in plant equipment.

"Today, some of that will happen. And that will increase the productive capacity of the economy. But, an awful lot of executives today, the first thing that they think of is mergers and acquisitions – which may increase their market power and allow them to raise prices, but it’s not going to do much for the average person. In fact, it may hurt the consumer.

"They’ll be thinking of buying back shares to pump up the share price and they’ll be thinking of giving additional dividends.

"None of those does anything to improve the productive capacity of the economy and thus, they don’t do anything to raise wages. The prospects for wages are fair, but this notion that all of a sudden everybody’s going to get a $4,000 increase in their wages is just nonsense.”

On what in the bill is of particular importance to Michigan's economy

“We’re a sort of a medium-tax state, but we do have relatively high property taxes. And if you have a large home with high property taxes, there’s going to be a $10,000 cap now on the amount that you can deduct.

"Also, fewer Michiganders are going to be... itemizing their deductions anyway because one feature of this tax law is that it doubles the standard deduction. And it only makes sense to itemize your deductions if your itemized are bigger than the standard deduction. Well, with the standard deduction going up, fewer people will choose to itemize. That is a simplification, and that’s one of the aspects of this that I think comes down in the plus column.”

For the rest of the conversation, listen above.

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