Corporations would surely benefit from a Trump tax cut — but probably at their workers’ expense

October 13, 2017
I did an interview with Sara Eisen and Scott Wapner on CNBC on Thursday afternoon. During the interview Scott challenged my criticisms of the Trump administration’s tax cut and asserted that such a cut would be sound policy for the economy by noting that Jamie Dimon is in favor of it. Scott noted that the JP Morgan chairman and chief executive recently said, “I would hire more workers if Trump’s tax reform passes,” and Scott used that quote as evidence that the Trump administration is justified in claiming a corporate tax cut would benefit workers.
There is probably truth in what Dimon says. If my taxes were cut, then I would spend somewhat more, as (most) economic theories predict. Perhaps I would get an additional hour of tennis lessons a week, thereby increasing my employment of tennis professionals by 1/40th of a worker. But overall, I would likely keep the vast majority of any tax cut. The tennis pro would benefit a little, and my bank account would benefit enormously. Meanwhile, the public coffers, and thereby other taxpayers, would suffer.
I believe the same would be the case at JP Morgan, but perhaps Dimon can prove me wrong. Let me put some numbers on the proposition. Last year JP Morgan paid $9.8 billion in income taxes on $34.5 billion in pretax income, giving it an effective tax rate of 28.4 percent.  President Trump has advocated slashing the corporate tax rate by 57 percent. If JP Morgan’s tax bill were to fall by 57 percent, the bank would save $5.6 billion a year. That would be enough to hire 44,800 people at the company’s average compensation per employee of $125,000 a year.
So, roughly speaking, workers will be better off (after accounting for their higher taxes that would eventually be necessary to replace JP Morgan’s lost taxes) if Dimon decides to expand JP Morgan’s U.S. workforce by 45,000 after getting a corporate tax cut. That strikes me as extremely unlikely, as it would represent more than a 25 percent rise in domestic head count. Doing so would imply that the stock market is wrong to expect that most of any tax cut will be reflected in higher after-tax profitability.
If Dimon and his compatriots would commit to hiring on this scale then it would serve as a credible argument in favor of the Trump administration’s plans. It would be interesting to know how much corporations would in fact increase their payrolls. I would be surprised if the actual results were to bear out the claims of Trump’s economists.
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