David Mendels is the former CEO of Brightcove as well as Adobe executive. Writing on LinkedIn Mr. Mendels broke down the lie that is the GOP tax cut plan. Specifically, Mendels attacked Trump senior economic adviser Gary Cohn and Speaker Paul Ryan’s assertions that this tax cut is about helping the middle class by easing their burdens and creating wage increases across the board. The latter mythology has been spread by GOP officials for weeks, including this amazing claim:
What would your family do w/ a $4,000 raise from the PresidentÃ¢ÂÂs tax cut plan? REPLY & IÃ¢ÂÂll share your familyÃ¢ÂÂs story in the press briefing
Ã¢ÂÂ Sarah Sanders (@PressSec) October 23, 2017
Mendels uses this outrageous claim as his jumping off point to explain the very simple ways in which companies decide on who they will hire and how much they will pay them, and it turns out that tax cuts DO NOT figure into those equations ever. Starting with the hiring and expansion of hiring in a company, Mendels explains that tax cuts affect one’s profits but the consumers’ demand is what dictates how many people he might hire.
We had clear metrics we followed in most areas–for every additional $ in sales growth we committed to, we could hire a roughly fixed ratio of addition sales reps. For every increase in call volume, we would hire a roughly fixed ratio of customer service reps. For new product ideas, we would expect management to sign up for significant and specific revenue goals. It is a simple but true concept, customers drive business growth, not tax rates, not mythical “job creators.” Tax rates impact profitability, but are only very indirectly tied to hiring.
After mentioning how misleading a statement like Huckabee Sanders’ was (i.e. “average” in regards to wage increases being a meaningless metric), Mendels gives the simple fact of business and the wages businesses pay.
Again, simple concept: the market for labor determines what CEOs/management/investors pay employees. Tax rates are not a factor. If I want to hire an engineer with experience in machine learning, the demand in the market right now is tremendous and the supply of people with that experience is limited. Salaries are going through the roof. If I want to hire a young person out of college for a junior sales or customer service job, it is a buyer’s market and wages are moderate. Neither of those realities change if my tax rate changes.
Finally, Mendel goes directly at what CEOs would do if they were to receive a profit windfall from a corporate tax cut. Exactly what you imagine they would do.
First of all, Occam’s Razor suggests that cutting corporate taxes will benefit the owners of corporations–the investor class. It it is pretty simple and obvious concept. The leap of faith required to argue the the goal is not that, but to benefit the working class, is such a stretch that it really can not be taken seriously. We know this because we have already tested this proposition and seen the results. Broadly in the US economy, we have seen a massive increase in corporate profits at the same time as we have seen stagnant wages. That increase in corporate profits has lead to a record stock market and a dramatic increase in wealth for investors, not to significant increases in wages for working people. A tax cut for corporations will increase their profitability. Why we should believe that this increase in profitability will lead to wage increases when we have already seen that increases in profitability over the last 10 years did not, but rather went to stock buybacks and dividend increases that benefitted the investors?
Mendel says when he was the CEO he would have been very happy if his company saw a rise in profits, but that would not move him or his board toward new hiring and wage philosophies. Mendels makes a pledge to donate any money he makes on a GOP tax cut toward groups fighting to bring more equality to our country. Unfortunately, people like Gary Cohn don’t seem to care about people in our country.
This is a Creative Commons article. The original version of this article appeared here.