Tax Break Meant To Increase Employee Wages Was Used To Replace Them Instead
The Washington Post has found that a $300 billion business tax break meant to increase employee wages and hiring has a very small effect on employment and no effect on wages. More, it has likely increased the rate at which companies can replace employees with machines, according to researchers at Duke University and Grinnell College.
The tax break, which is known as bonus depreciation, lets businesses take larger write-offs on the depreciation, or wear and tear, of new equipment. The tax break was originally introduced by the Job Creation and Worker Assistance Act of 2002, but was recently expanded as part of the Tax Cuts and Jobs Act of 2017.
Although businesses can deduct the equipment depreciation costs on their annual tax returns, bonus depreciation allows the business to take some or all of the deduction up front, when the equipment is first purchased.
The White House’s Council of Economic Advisers predicted "that lowering the corporate tax rate and allowing businesses to deduct the full price of equipment purchases upfront 'will result in higher worker wages as a result of changes in worker productivity that result from increased capital investment.'”
Although this tax break did create 5.65 million jobs relative to the baseline level of employment in 2001, it came at a high cost for taxpayers. Taxpayers had to pay roughly $53,000 per job.
More, the tax break made it less expensive to invest in equipment, which led to a higher degree of automation in the workplace. For example, an automated checkout machine replaces a worker behind the counter.
One of the study’s co-authors, Juan Carlos Suárez Serrato, said, “If you believe that the market is doing things correctly, the rate at which we invest in these things should not be accelerated artificially.” An accelerated shift toward machine labor also has troubling implications for economic inequality: “If you have more machines and fewer workers, there’s going to be more inequality going toward people who own the machines, and not to the people who use them.”