The Corner

Economy & Business

Rubio on Corporate Taxes

The Economist quotes Senator Rubio on the recently enacted corporate tax-rate cut: “There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers. In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.”

In thinking through what he said, we should distinguish between two arguments for the reduction in the corporate tax rate. The principal argument that conservative (and other) economists have made for the reduced corporate rate is that it will increase the incentive for companies to invest in the U.S., and that eventually higher wages will be among the happy effects of their response to this new incentive.

A lot of Republican politicians have been making a different argument: Cut corporate taxes, and corporations will pass some of their savings along to workers. (See here for an example of an economist commenting on the difference between these cases.)

Senator Rubio is responding to the politicians’ case, not the economists’ case, and he is responding to it accurately. Most of the money corporations are saving from the tax cut is not being plowed into higher wages; we don’t yet have the evidence on what kind of wage gains the tax cut will yield; a lot of Republicans are making overblown claims about the positive effects it has already had. Everything he said on this subject is compatible with thinking that it was right to bring the corporate tax rate down from 35 percent, that it will eventually raise wages to some as-yet-unknown degree, and that it is perfectly legitimate for companies to engage in stock buybacks (even if they do not directly lead to higher wages).

Conservatives will sometimes have reason to criticize Rubio, as we have had in the past. We shouldn’t criticize him in this instance, though, because he’s right.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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