With the passage of the tax reform bill, corporations across America celebrated by passing on some of the tax savings they would receive on to their workers. More than a million people have already received bonuses, wage increases, and increased contributions to 401(k) accounts, and that number continues to grow.
While most Americans see this as a positive development, some writers have raised concerns that the corporations in question are rewarding workers as part of a cynical quid pro quo with legislators who passed the tax cut. Though these writers are correct to be concerned about crony capitalism, workers benefiting financially from pro-growth tax reform is not an example of it.
Crony capitalism occurs when government legislators or bureaucrats cooperate with well-connected businesses to produce policies which favor well-connected businesses at the expense of others, such as competitors or the general public.
That is not the case with the recent tax reform. Most corporations are rewarding their employees for a very simple reason: a lot of other businesses are too. Corporations now have more money to pay the same amount of workers, and many are choosing to invest it by making employment at their business more attractive to workers. Other corporations that would not ordinarily take the affirmative action of rewarding workers are incentivized to play “defense,” passing on the benefits of tax reform to their workers to avoid losing their best employees to more generous businesses.
It is true that corporations rarely pay employees more than they have to out of the goodness of their hearts, but that does not mean that they always pay employees the legal minimum. Less than 3 percent of workers are paid the minimum wage because high-quality employees are a crucial part of a successful business, so businesses compete with each other to attract them.
Skeptics may argue that corporate payouts for workers are a public relations maneuver to create goodwill towards their business and corporate tax cuts in general. In some cases this may be true, but even if it is, does that make it a bad thing? For an action to qualify as crony capitalism, there must be an entity that is harmed. In the case of corporate tax cuts, there are clear winners — the business community, workers receiving monetary benefits — but the lack of a “loser” is apparent.
One of the most frequent losers in crony capitalism cases — apart from the most obvious, such as those directly harmed by tariffs — are competitors of the businesses benefiting from a government policy. For example, when a corporation receives a tax cut that competitors do not receive, those competitors are placed at a disadvantage when competing with the corporation receiving the tax cut.
In this case, corporations are benefiting from a tax reform package which benefits businesses of all types. Cuts to the corporate tax rate were paired with small business tax cuts in the Tax Cut and Jobs Act, ensuring that businesses of all sizes receive a tax cut under the tax reform bill. Policies that affect businesses across the board rarely qualify as crony capitalism for this reason.
Crony capitalism is not just a meaningless catchphrase, it has a specific meaning. Private businesses giving out raises, even if done cynically to curry political favor or to secure a positive headline, simply doesn’t qualify. Conflating the two risks discouraging policymakers from pursuing pro-growth policies which expand the economy, as well as minimizing the danger crony capitalism poses to the economy.
Andrew Wilford (@PolicyWilford) is a contributor to the Washington Examiner's Beltway Confidential blog. He is an associate policy analyst at the National Taxpayers Union.
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