While the federal government’s attention should be focused on the natural and humanitarian disaster unfolding on the Gulf Coast of Texas and Louisiana on the twelfth anniversary of Hurrican Katrina, President Donald Trump went to Missouri on Wednesday to call on Congress to pass sweeping tax cuts he said would unleash the economy and lead to higher wages for all Americans, leaning hard into conservative economic theories as he tries to revive his domestic agenda. Trump pushes tax cuts, hopes he isn’t ‘disappointed’ by Congress:
Trump, speaking at a manufacturing company here, provided few details of what the tax plan should look like, saying simply that he wants to cut taxes for companies and families and encourage firms to move operations back to the United States from places like China.
While Trump’s event was short on specifics and largely overshadowed by continuing coverage of Hurricane Harvey, it signaled a shift in his strategy for advancing his priorities on Capitol Hill.
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The speech Wednesday outlined broad principles but did little to advance the debate over the specifics of what the tax plan should look like. Trump even seemed to waver on one of the few specific tax ideas he has advanced, saying that “ideally” the corporate tax rate would be lowered from 35 percent to 15 percent as he has previously proposed. Many GOP aides on Capitol Hill believe it will be difficult to get the rate below 20 percent.
White House seems to be working more closely with congressional GOP leaders on tax legislation than during the health care debate, signs of potential tensions were evident Wednesday with Trump leaving little doubt where he would place blame if this effort also fails.
“I am fully committed to working with Congress to get this job done. And I don’t want to be disappointed by Congress, do you understand me?,” he said. “Do you understand? Understand? Congress. I think Congress is going to make a comeback. I hope so.”
Remember, this is an administration that earlier this year promised it would have “tax reform” done by the end of August. We are now talking about a back-of-the-envelope “tax cut” outline (originally announced in April) that is still not yet a bill.
The one “tax cut” proposal that Tea-Publicans are always committed to as the First Commandment of their false religion of faith based supply-side “trickle down” economics is cutting corporate tax rates.
Trump closely followed the economic vision many Republicans have tried to advance for years — namely that cutting corporate taxes will grow the economy, lead companies to pay workers higher wages, spur those workers to spend more money and help grow the economy.
But budget analysts have found a large portion of the benefits from what Trump has outlined would be enjoyed by the wealthiest Americans. The Tax Policy Center estimates that 40 percent of the tax cuts would go toward the top 1 percent of U.S. earners, or those who make more than $732,000 a year.
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Trump on Wednesday also said that lowering the corporate tax rate would help lure trillions of dollars in overseas earnings back into the United States, further helping the economy grow. Many Democrats have expressed skepticism about this proposal, saying companies would use the money to pay senior executives and shareholders and not hire workers or make new investments.
With few actual details of the Trump tax plan, it is difficult to assess. But here is what we already do know. Sarah Anderson explains that It’s a Myth That Corporate Tax Cuts Mean More Jobs:
“The arithmetic for us is simple,” AT&T’s chief executive, Randall Stephenson, said on CNBC in May. If Congress were to cut the 35 percent tax on corporate profits to 20 percent, he declared, “I know exactly what AT&T would do — we’d invest more” in the United States.
Every $1 billion in tax savings would create 7,000 well-paying jobs, Mr. Stephenson went on to say. The correlation between lower corporate taxes and more jobs, he assured viewers, runs “very, very tight.”
As Congress prepares to take up tax legislation this fall, including an effort to reduce the corporate tax rate, this bold jobs claim merits examination. Notably, it comes from the chief executive of a company that’s already paying comparatively little in federal taxes.
According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes. (The company argues that it pays significant taxes, at a rate close to 34 percent in recent years, but that includes deferred taxes and state and local levies.)
Despite the enormous savings AT&T has realized, the company has been downsizing. Although it hires thousands of people a year, the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016, accounting for acquisitions and spinoffs each involving more than 2,000 workers.
The company has also spent $34 billion repurchasing its own stock since 2008, according to our institute report, a maneuver that artificially inflates the value of a company’s shares. This is money that could have gone toward research and development or hiring.
Companies buy back their stock for various reasons — to take advantage of undervaluation, to reward stockholders by increasing the value of their shares or to make the company look more attractive to investors. And there is another reason. Because most executive compensation these days is based on stock value, higher share prices can raise the compensation of chief executives and other top company officials.
Since 2008, Mr. Stephenson has cashed in $124 million in stock options and grants.
Many other large American corporations have also been playing the tax break and loophole game. Their huge tax savings have enriched executives but not created significant numbers of new jobs.
Our report analyzes the 92 publicly held American corporations that reported a profit in the United States every year from 2008 through 2015 and paid less than 20 percent of their earnings in federal income tax.
We chose this particular tax threshold because, as Mr. Stephenson mentioned, House Republicans are proposing to reduce the federal statutory corporate tax rate to 20 percent, down from the current 35 percent. President Trump wants an even deeper cut, down to 15 percent.
If claims about the job-creation benefits of lower tax rates had any validity, these 92 consistently profitable firms would be among the nation’s strongest job creators. Instead, we found just the opposite.
The companies we reviewed had a median job-growth rate over the past nine years of nearly negative 1 percent, compared with 6 percent for the private sector as a whole. Of those 92 companies, 48 got rid of a combined total of 483,000 jobs.
At the companies that cut jobs, chief executives’ pay last year averaged nearly $15 million, compared with the $13 million average for S&P 500 companies.
Instead of tax-rate cuts for these big corporations, the coming tax debate in Congress should focus on making wealthy individuals and big corporations pay their fair share.
American multinationals hold $2.6 trillion in profits “offshore,” on which they would owe $750 billion in federal taxes if the money was repatriated. In most cases, these foreign profit stashes are merely an accounting fiction. Companies retain full access to these funds for use in the United States and could, if their executives so chose, use them to create jobs here.
Ordinary Americans have to pay all the taxes they owe each and every year. Offshore corporations should be required to do the same.
Beyond closing loopholes, we need to explore new ways to raise revenue fairly, including a tax on Wall Street speculation.
Note: The United States instituted a transfer tax on all sales or transfers of stock in The Revenue Act of 1914 (Act of 22 October 1914 (ch. 331, 38 Stat. 745)). Instead of a fixed tax amount per transaction, the tax was in the amount of 0.2% of the transaction value (20 basis points, bips). This was doubled to 0.4% (40 bips) in 1932, in the context of the Great Depression, then eliminated in 1966. See generally, Financial transaction tax.
Most of us already pay a sales tax on gasoline, clothes and other basics. Why should hedge fund investors and other Wall Street traders pay no tax at all when they engage in short-term buying and selling of millions of dollars’ worth of stocks and derivatives? [aka “Casino Capitlaism”]. A fee of just a small fraction of 1 percent on each Wall Street trade would encourage longer-term investment while generating huge revenue for real job creation.
At a town hall this month at AT&T headquarters in Dallas, Mr. Stephenson urged his employees to call Congress and demand a corporate tax cut.
The message policy makers really need to hear? Stop peddling the myth that “tax relief” for big companies will be good for the rest of us.
Greg Sargent of the Washington Post adds, Today you will hear the death rattle of Trump’s economic populism:
In reality, what we will actually hear at this speech is the death rattle of whatever pretensions to genuine economic populism Trump has ever harbored, if any. Trump will make it official that this rhetoric is merely a disguise for the same old trickle-down economics we have heard for decades — confirming that his economic agenda is in sync with the very same GOP economic orthodoxy that he so effectively used as a foil to get elected.
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“That’s trickle down,” Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, told me today. “This whole notion that cutting taxes on rich guys and corporations is going to stimulate capital investment — that’s trickle down warmed over once again. We’ve seen this movie before. It always turns out badly.”
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But we do know what Trump’s previous plans have done. The Tax Policy Center analyzed his final plan during the campaign, by estimating the combined distributive impacts of both the individual and business tax cuts on households. The results were summed up by TPC’s Howard Gleckman in an email to me:
The Tax Policy Center estimates that half the benefit of Trump’s final campaign tax plan, including both the business and individual tax cuts, would go to the top 1 percent, who make $700,000 or more. Middle-income households would get about 6 percent of the benefits. To put it another way, the average tax cut for the top 1 percent would be $214,000 or 13 percent of their after-tax income while the average tax cut for a middle-income household would be about $1,000 or 2 percent of their after-tax income.
An analysis of the most recent White House plan yielded similar findings.
Rosenthal added that Trump’s planned sales pitch for the plan — that it would benefit American workers to make business tax rates more “competitive” with other countries — was built upon the same faulty assumptions that have long undergirded previous iterations of trickle down economics.
“The basic fallacy is that rich guys and corporations are paying too much,” Rosenthal told me. “But actually we tax capital lightly, and we tax corporations ineffectively. We have a top statutory rate of 35 percent. But our corporations pay a much lower rate — maybe half of that, depending on how you estimate it. They are paying an effective tax rate that is pretty competitive with our international competitors.”
Now, if Trump wants to make the case that huge high-end tax cuts will actually help workers, fine — let’s have that debate. But the point is that Trump is revealing once again that his populist economic nationalism — as he himself defined it — was largely a scam all along.
“But for now, his populist economic nationalism is pretty much dead, effective today.”