You hear a lot about the so-called “trickle-down effect” that lower corporate taxes will trigger, and also a lot about the decline in wealth of the middle class of American workers over the years. A recent Harvard Business School report suggests that there HAS been an erosion in the income of American workers, but it also casts some doubt on the trickle-down theory. Citing data from the U.S. Bureau of Economic Analysis, the economists found that corporate profits grew from 4.7% of the U.S. economy in the year 2000 to 9.1% in 2016—by any measure, a healthy rise, considering that the economy itself was growing during most of those years. But worker salaries and wages fell from just under 47% of the economy in 2000 to 43.4% in 2016.
To make matters worse, employees were gradually asked to cover a rising percentage of their own health costs. Employer health plans were becoming less generous while the cost of healthcare was rising faster than the broader economy—further eroding worker wealth.
But… The large corporate tax cut will help, right? The economists noted that some companies have offered one-off bonuses to their employees, but they found no evidence of a systemic rise in permanent wages.
About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years. Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.
Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association.