The Trump administration’s tax reform plan claims to benefit the middle class. But in fact, most of the savings would go to the wealthy and to businesses. The rationale is that such reductions would stimulate the creation of new jobs.
However, businesses do not create jobs because of lower tax rates or because they have more money to spend. Instead, they base their decisions on perceived business needs and opportunities.
If the needs are there, they will borrow the money to meet them, the more so when interest rates are low, as they are now. If they do not identify an opportunity, they will use the money to increase their cash reserves or distribute the funds to their owners/shareholders. Businesses will add to their workforce only if it makes business sense.
A growing economy, rather than tax cuts, leads to the creation of new jobs. Middle-class consumers, whose spending accounts for 70 percent of the economy, are more likely to actually spend their tax refunds than are businesses or wealthy people. These are the economic facts any tax reform plan must take into account.