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Dear GOP: Stop investing in so much stuff

Catherine Rampell on

WASHINGTON -- Invest more in people, not stuff.

That's not a tip for achieving personal happiness. It's a statement about economic growth.

Right now, much of the Republican tax agenda is geared toward incentivizing investments in physical capital. But that's not where the country's real deficit lies. What's sorely lacking is human capital.

And if the Republican plan passes, that human capital deficit is likely to worsen.

Republicans in the House, Senate and White House argue that we need major corporate tax cuts to promote economic and employment growth. The mechanism goes something like this: If we lower taxes on returns to capital (i.e., corporate profits), then shareholders will make more capital available to businesses. With more capital available, businesses will be able to invest in more factories, robots, equipment, stores. And through that additional investment, more workers will get hired and wages will rise.

Huzzah, trickle-down at last!

Yeah. So here's the thing. By many metrics, capital is already readily available.

Interest rates remain low by historical standards. In the most recent National Federation of Independent Business survey of small- and medium-size businesses, only 2 percent of firms said their borrowing needs aren't being met. That's tied with the all-time low. Long-term price-to-earnings ratios are at their highest level since the dot-com bubble, meaning equity financing is also quite cheap. And companies are sitting on mountains of cash.

None of this suggests that a lack of access to capital is holding back our economy. It suggests instead that Republicans' proposed ginormous corporate tax cuts are a way to provide a windfall to investors and shareholders without changing any economic fundamentals. Or spurring hiring, for that matter.

What, then, might actually help grow the economy, and help workers in the process?

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