Trump handed big business a massive tax cut, and all he got in return was embarrassment
- Two years after passing a massive tax cut for the US's biggest businesses, Trump has nothing to show for it but a busted-out budget deficit and anemic tax revenue.
- The undisputed winners here are big corporations. After the cut passed, the number of companies paying zero in taxes has roughly doubled, according to research from the Center for Public Integrity.
- What's more, companies weren't happy enough with the tax cut they got. Reporting from The New York Times shows how after the law passed, corporate lobbyists descended on Washington to write the rules that would allow them to pay even less.
- If the president had the capacity for embarrassment, this would trigger it.
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No one can say President Donald Trump wasn't warned.
Two years after his administration passed a massive tax cut for corporations meant to spur economic growth, the verdict is in, and the results are embarrassing. The tax cuts did not "unleash animal spirits" (as the business media is so fond of saying). And it did not usher in a period of 3% GDP growth (as Trump's administration was so fond of echoing).
The plan did not - by any stretch of the imagination - "pay for itself with growth and reduced deductions," as Treasury Secretary Steve Mnuchin said it would back in 2017. In fact, the US budget deficit has grown by 50% since Trump took office.
There was one tax promise the administration did keep, and with gusto: It dramatically lowered the tax responsibility for big corporations. According to analysis by the Tax Policy Center, the government's projections for how much revenue it would take in after the law passed were too high across the board. But none were as sugar-coated as its projection for how much corporate tax revenue it would collect, which was off by about 40%.
Under Trump's tax law, corporations paid $135 billion less in taxes in 2018 than the year before.
Corporations did not reinvest that lovely payday back into the US economy, either - another one of the bill's supposed selling points.
Trump and his allies claimed that with this tax windfall corporates would unleash a tide of investment into the economy, but that never materialized. Growth in business investment was lackluster in 2019, and in testimony before Congress, Federal Reserve Chairman Jerome Powell pointed to this sluggishness as a contributor to slowing GDP growth in the third quarter of last year.
In other words, once corporate CEOs got their sweet, sweet tax cut, they spent just a little on the actual sorts of investments that could boost the economy and then kept the rest to pour into a record number of stock buybacks (we can argue about the value of buybacks another time, but they certainly aren't helping substantially boost GDP growth right now).
Andy Kiersz/Business Insider
One would think after Trump handed his friends in corporate America a big tax windfall they would return the favor and contribute substantially to US economic growth; but instead there was almost no boost in investment despite the fact that a study from the Center for Public Integrity found that the number of companies that paid zero in tax about doubled from 2017 to 2018.
A swarm locusts, a plague of frogs
To add insult to injury, it isn't just that big business took its gains from the tax cut and didn't reinvest them in the US economy, it's that it took them and decided those gains weren't nearly enough. The moment the tax law was passed corporate America started demanding even more tax benefits from the Trump administration, according to a report from The New York Times.
First you have to understand that, in theory, the law represented something of a deal between the government and corporate America. It went like this: If the government lowered the corporate rate in the US, corporates would bring back a bunch of money they had stashed offshore in lower tax countries to be taxed here.
But again, that deal wasn't enough for corporates. After the tax law passed in 2017 their lobbyists descended on the US Treasury like a biblical plague. You see, while Congress had written the new law, the Treasury had to write the rules for actually implementing the tax changes.
And according to The Times, which reviewed the rules as they were finally written on top of interviewing policymakers and tax experts - the corporate pressure worked. Large businesses can now legally avoid "tens if not hundreds of billions of taxes that they would have been required to pay."
"Treasury is gutting the new law," Bret Wells, a tax-law professor at the University of Houston, told The Times. "It is largely the top 1% that will disproportionately benefit - the wealthiest people in the world."
Some of the big winners of this effort were some of the most egregious tax dodgers in corporate America, pharmaceutical companies, tech companies and banks. And the whole swamp of Washington came together for this effort.
Big foreign banks, for example, begged not to have to pay taxes on money kept at American subsidiaries to comply with capital regulations - and they got that. Then, in an fascinating turn, Erika Nijenhuis, the attorney who lobbied on behalf of the Institute of International Bankers to get this rule passed, joined the Treasury's Office of Tax Policy in the fall of 2019.
Now the rules that were supposed to bring tax revenue home to the United States will bring in much less than projected. Tax revenue as a share of GDP is already below what one would expect in a healthy economy (16.3% versus 18.4%). And, according to new data from the Congressional Budget Office, income inequality will worsen in 2021 as the richest Americans will benefit from the biggest tax cut while the middle class will see the most modest growth in income.
Perhaps this was all just one pathetic bungle of a bill - a product of a partisan Washington where little work of quality is getting done. Or perhaps it was intentional, a product of a partisan Washington where work is being done only for the rich and powerful. Either way, at least publicly, big business made a deal with Trump, and then reneged.
Given his own experience with making deals, Trump should've recognized that move coming a mile away.
This is an opinion column. The thoughts expressed are those of the author(s).