A False Assumption Of Capital



The new tax bill is a tax cut for the rich being sold as a tax cut for all. The mechanism for this is to pull out the old “trickle-down economics” philosophies that were popular during the 1980. Those philosophies were based on the assumption that tax cuts to the rich mean more jobs for the middle class. So in a sense, the benefit to the middle class is that we will get more jobs because the rich now have more money due to tax savings to hire more of us – yeah!

But I think the mechanics of the bill do not achieve that goal. Let me explain.

First, one of the rules in the bill right now that companies with more capital will see a greater tax break. The assumption is that capital is what generates jobs. Professional service corporations (PSC’s), which are not rich in capital by comparison, do not generate jobs. Unfortunately, the numbers just don’t flush out. According to the Census Bureau there are 2.3 million PSC’s in the US employing about 6 million people.* So, while each of these firms is small, they are generating jobs.

Also, capital rich companies are generally manufacturing companies. The future trend for manufacturing companies is automation in order to reduce their labor costs. Automation is a job killer at worst or at best it is a job reducer (for every 10 manufacturing jobs there will be only one manufacturing job and one IT guy to manage the robots); not a job creator. In addition, it’s easier to automate a manufacturing job than a professional service job.

Therefore saying the PSCs don’t create jobs is not accurate.

We don’t want to discourage the tax breaks for capital rich companies, we want people to understand that PSCs have capital too. It’s just not something tangible and not something that goes on the balance sheet. PSC’s main capital is people and the investment in those people: years of training, ongoing development of new skills and keeping up with new rules and laws.

Again, we don’t want to discourage responsible tax breaks for corporations, we just want all corporations to benefit. We do not think that PSCs should be excluded from the 20% corporate tax rate that has been proposed.

* https://www.sba.gov/sites/default/files/advocacy/United_States.pdf


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