You Know Who the Tax Cuts Helped? Rich People
S E E D E D C O N T E N T
When Republicans were pitching a massive tax cut for corporations and wealthy families last year, they promised voters many benefits: increased investment, higher wages and a tax cut that pays for itself. The tax plan, congressional leaders said, would turbocharge the American economy and provide a much-needed helping hand to working-class families.
“Most people, half the people in this country, live paycheck to paycheck, so there’s a lot of economic anxiety,” the House speaker, Paul Ryan, told The Times in November. “And I think just one of the key solutions is faster economic growth, more jobs. And I think the best thing we could do to deliver that is tax reform.”
So, more than six months since President Trump signed the tax cut into law, is it delivering on the promises Mr. Ryan and other leaders made?
Buybacks Reach New Heights
The most notable outcome of the tax law is one that few Republicans talked about: Companies are buying back their own stock — a lot of it. Stock buybacks are expected to reach a record $1 trillion this year. After Congress reduced the top federal corporate tax rate from 35 percent to 21 percent, businesses are flush with cash. Lawmakers also let companies repatriate foreign earnings that they have been amassing at a rate of 15.5 percent for cash and 8 percent for other assets.
By spending a big chunk of their tax windfall on buying back shares, businesses are boosting demand for and, thus, the price of their stock. It is no wonder then that the S&P 500 stock index is trading near its high.
By far, Apple conducted the largest buybacks, totalling nearly $45 billion in the first six months of the year.
Share buybacks have an understandable appeal to executives, many of whom are compensated with stock themselves, and to investors. But buybacks do little for workers, most of whom own little or no stock . It is not even clear that it is in the best long-term interest of companies when they could be using that money to expand or invest in technology that would make them more productive and profitable in the future.
These buybacks amount to a huge wasted opportunity. They also weren’t unexpected. In 2004, Republicans temporarily cut the tax rate on foreign corporate profits, promising that would spur economic growth and increase wages. Instead, many corporations bought record amounts of their own shares.
Investments Have Flatlined
With so much of firms’ focus on buying back stock, a key Republican prediction — that tax cuts would encourage spending on equipment and factories — has not come to fruition. There has been a modest increase in investment this year compared to recent quarters. Companies in the S&P 500 had spent around $147 billion through the end of March. A recent modest uptick began in early 2017, long before the tax cut.
Investment as a percentage of economic output climbed in the first quarter but fell to 17.5 percent in the second, far below the nearly 20 percent it reached in 2006 before the recession. Growth in productivity — which ought to accelerate when businesses invest — was just 0.4 percent in the first quarter.
Real Wages Have Declined
And what happened to that promise of a big raise for workers? No sign of it yet.
The typical family would earn $3,000 to $7,000 more a year , the White House Council of Economic Advisers said. In fact, real wages are down, largely thanks to the rising price of oil, which has more than offset any modest increase in income.
Even ignoring inflation, wages are up only 2.7 percent over the last 12 months. Even with the unemployment rate at a low 3.9 percent, businesses are not offering higher pay yet.
The idea that the tax cuts were going to line workers’ pockets was always a mirage. Most people will enjoy only a modest and temporary tax cut — families earning $25,000 or less will save on average just $60 on their federal tax this year, and those making between $48,600 and $86,100 will save $930, according to the Urban-Brookings Tax Policy Center . Families in the top 1 percent, on the other hand, will save an average of $51,140.
Tax Cuts Don’t Pay for Themselves
“Not only will this tax plan pay for itself, but it will pay down debt,” Steven Mnuchin, the Treasury secretary, said . This statement was absurd when Mr. Mnuchin made it, but it looks even more ridiculous now. The deficit and the federal debt are growing — and at a stunning pace. In the current fiscal year, the federal government will spend $912 billion more than it collects in revenue, an increase of 39 percent from the 2017 fiscal year, according to the Congressional Budget Office .
Thanks to the tax cut, the government will take in about 1 percent less in the 2018 fiscal year than it did the year before. Corporate tax revenue is plummeting — the C.B.O. predicts a drop of 27 percent this year. At the same time, the federal government will spend nearly 5 percent more, due, in large part, to Mr. Trump’s insistence on more defense spending.
Over the coming decades, the federal debt could nearly triple as a share of the gross domestic product if Congress makes the Trump tax cut and spending increase permanent, according to the Committee for a Responsible Federal Budget . Lawmakers have talked about extending the cuts in last year’s law beyond the next 10 years — something they did with some of the cuts passed during the George W. Bush administration. “I don’t know why we wouldn’t want to do that,” the Senate majority leader, Mitch McConnell, said in April .
Today, many Republicans seem to realize that the tax cut has become a political liability, which is why they aren’t talking about it ahead of the November election. Even they realize that it doesn’t do any of what they promised.
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So... the Republican Tax Cut has benefited only the already-rich.
Gosh. That's such a surprise.
Hmmm...
From your own article...
Personally, I would call $930 a "benefit".
That is not a significant amount. It isn't enough for a house payment and won't pay both a car payment and the quarterly insurance.
We would have been far better off spending that money on infrastructure repairs and improvements that would benefit us all. Tax cuts are for suckers who don't understand macroeconomics.
Wasn't that a major promise of the Trump campaign? (Fixing the country's infrastructure?)
Trump tried to turn the traditional (80%)federal funding and 20% state funds on its head when they presented their laughable infrastructure plan. It was an obvious non-starter because of the lack of federal funding. They also put forward an idea of privatizing critical infrastructure projects.
No true Scotsman would turn it down.
It's more than the mortgage on my rental property. That aside, I suspect it could have been $10k and you would still pretend it wasn't beneficial.
I would rather have seen a gargantuan infrastructure project. But everybody is getting some share of the tax cuts.
Meh. So are tons of other government actions. Tax cuts are less damaging than many.
Did you do that on purpose? If so, congratulations, because it's very funny!
Guilty as charged.
Ok, but we knew this all along. We knew before the tax cuts even passed that they benefited the rich, they wouldn't pay for themselves, they would drive up the debt. Republicans have been openly and blatantly selling us out to corporate interests for decades. They actually have the righties believing that the regulations we put on industry to protect the people are a bad thing FOR the people. The only thing left to do now, is look at those who continue supporting the corporate thug party and ask "What the fuck is WRONG with you?"
Seems that I've heard that old refrain of ''tax cuts will pay for themselves'' before...It wasn't true then and isn't true now.
Yes, K... but you are not one of the Unthinking Faithful TM. Those good folks have been told that tax cuts, especially for the rich, pay for themselves. So of course they believe it.
What's the appropriate word, here?
...
...
... ah, yes... I remember now... gullible...
The nice thing about being a private corporation is all of our tax cuts can go towards capital investments and growth. We are now in the planning stage a significant expansion.
Except that bit that goes towards executive bonuses lol.
Simply put?
Them tax cuts just bought my wife and I two new cars, and a new property. Of course, I also fall into the top 90% so....
And those cars just materialized out of thin air. Nobody got paid to make them. Nobody got paid to make the parts. Or to transport them. Nobody will get paid to service them.
Nobody is going to build anything on that property. No workers will be hired, no materials bought, no additional taxes paid.
You're just hoarding your money, you capitalist bastard......
When Trump talked about "winning", "so much winning", he meant for his cronies, not 99% of Americans. They are winning, we are losing.
When Trump goes public and asks American Veterans to give up their pay raise to pay down his deficit we all lost big time. That was cruel, heartless and disgusting.
Yet even when Trump does the unthinkable attacking our veterans by asking them to give up their pay, blind Trump followers ignore the worst behavior on earth.
I agree with you, but Trump's Unthinking Faithful TM do not.
They continue to have absolute Faith in everything the Glorious Leader does.
Many Soybean farmers still think he's wonderful....
Their hands are still clapping as their feet go through the meat-grinder.
Ahhh, fuckin A right it did. I like when companies I have invested in pay me more for essentially no reason.