Marco Rubio’s original family-friendly tax cut policy was quickly expanded once questioned by the guardians of conservative supply-side orthodoxy. Most notably, he would eliminate all taxes on incomes from capital gains and dividends. This income from holding financial assets is incredibly concentrated at the top. As Josh Barro notes, Rubio’s tax plan “would raise incomes for the top one-thousandth of taxpayers by 8.9 percent — that is, an average tax cut of more than $900,000 per year — because of its sharp cuts in tax rates on business income and capital income.”
Marco Rubio's Radical Alignment with the Financial Industry - Roosevelt Institute
Multiple issues addressed in that article but it's curious that one of the ailments of the US economy is that wages have been stagnating for decades while the top of the income and wealth ladder has accumulated most of the gains from economic growth.
This is now clearly a drag on growth itself. Companies sitting on record profits, record cash levels and facing record low financing cost but it's very difficult for most to grow the top line when wages are not growing, so there is no investment boom either despite the very healthy financial position and record low financing cost.
Why add to production capacity when you have trouble filling the existing one, which is why we have payout ratios (dividends and stock buybacks) in excess of 90%, which concentrates even more income at the top, reinforcing the problem.
And what does Rubio want? Make this all much more easy, basically. Is there any evidence this will work? Probably not:
Besides the massive distributional implications, this has consequences for finance’s power over the real economy. A lot of people are looking at the influence of the financial sector and the issue of “short-termism,” or the extensive prioritization of dividend and buyback payments to shareholders over real investments. Independent of its effects in driving inequality, Rubio’s removal of any taxes on dividends and capital gains would certainly scale this issue. As Danny Yagan has found, the substantial cuts to dividends passed by the George W. Bush administration didn’t boost investment. It did, however, boost dividends, something other research in finance has found. If you are worried that corporations prioritizing payouts instead of investments is a challenge to our economy, taking the extreme act of eliminating taxes on dividends and capital gains would send that spiraling.
Marco Rubio's Radical Alignment with the Financial Industry - Roosevelt Institute
