Last week, in a FaceTime commentary about why investing in good people at retail - by hiring more of them and paying them well - is a good idea, I said the following:

I know there’s a lot of talk about tax cuts creating corporate wealth that will trickle down, but I think the core weakness in that argument is that senior executives generally are rewarded for driving down labor costs and creating investor dividends - not the other way around.

Until that changes … or at least until there is investor recognition that a rewarded and invested employee class can lead to even greater dividends in the long run … I’m not sure wage stagnation ever will end.


Which made a CNBC story yesterday particularly interesting, when it focused on a CEO Council conference held by the Wall Street Journal at which chief Trump administration economic advisor Gary Cohn appeared.

The discussion, quite naturally, turned to the various tax cut plans being considered by the US Senate and House of Representatives. At one point, members of the audience were asked “whether the reform bill would cause them to spend more on growth.”

Only a few responded in the affirmative.

The CNBC story goes on:

“One of the overriding issues with the plodding post-Great Recession recovery has been the lack of business investment. The administration is hoping that lower tax rates coupled with a path to bring back home the $2.5 trillion or so of overseas cash would generate the kind of investment that would boost growth to 3 percent or 4 percent a year.

“However, multiple indicators show that tax changes alone won't do the trick.”

The fact is that “companies already have indicated that much of the benefits they get from tax cuts won't go directly to growth-related activities … A Bank of America Merrill Lynch corporate risk management survey over the summer found that 65 percent of companies would first use their savings to pay down the $6 trillion corporate debt tab for U.S. companies. Share repurchases were next at 46 percent while mergers and acquisitions ranked third at 42 percent. Capital expenditures were all the way down at fourth at just 35 percent.”

KC's View: The proposed tax cut plans aren’t just aimed at prompting greater hiring and the raising of salaries by America’s employers … but those certainly are two of the goals that are part of the broader effort to jump-start an economy that everybody would like to grow faster.

If tax cuts accomplished these goals, that would be a good thing for both management and labor … but I’ll stick with my original hunch, which is that it won’t happen because we live in a system in which senior executives generally are rewarded for driving down labor costs and lifting up investor dividends - not the other way around. Though, to be honest, I’m a little surprised that it was a forum attended by Gary Cohn that has reinforced my opinion.