Here's one idea to boost workers' wages: Cut corporate taxes. As a recent study by the nonpartisan Congressional Budget Office concluded, workers bear 70 percent of the tax burden. And a 72-country study by the conservative American Enterprise Institute found that higher corporate taxes push down workers' wages.
It's a fascinating optionone I first tossed out a couple of weeks agothat I discussed last night on CNBC's Kudlow & Co. But one of the other panelists, liberal economist Jared Bernstein, raised a smart objection to the idea: With corporate profits booming and companies sitting on massive amounts of dough, it's not as if there's a cash crunch out there right now. Companies have plenty of money to pay workers more.
But do they really? As Kevin Warsh, a governor at the Federal Reserve, pointed out in a speech last summer, companies have been hoarding cash for a variety of reasons, including "business caution due to geopolitical uncertainty, concerns about the sustainability of the recovery, and a more process-intensive regulatory and legal environment." (That last part is a reference to the Sarbanes-Oxley corporate reform law.) And a recent Ohio State University study, in an attempt to figure out why the average cash-to-assets ratio of U.S. industrial firms increased by 129 percent from 1980 to 2004, said rising cash balances have a sound, long-term economic reason behind them: "The average cash ratio increases … because the cash flow of American firms has become riskier, these firms hold fewer inventories and accounts receivable, and the typical firm spends more on [research and development]. The precautionary motive for cash holdings appears to explain the increase in the average cash ratio." In short, CEOs think we live in a more dynamic, risky, and chaotic world. As a result, they're keeping more cash on hand to deal with this challenging business environment. So cutting corporate taxes might indeed be one way, though hardly the only way, to help workers.