But It’s Been
Great for the Super-Rich and the Corporations They Control
Donald Trump’s tax cut
for the rich and the corporations they control is turning out to be a bust for
the American economy.
It will, however,
burden taxpayers with at least $1.5 trillion more federal debt because, instead
of boosting tax revenues through increased economic activity as promised, it
has caused a sharp drop in revenue.
In addition, millions
of residents of blue states are about to get hit with big federal income tax
increases while many American expatriates who own businesses overseas are also
facing unexpected new tax bills, especially if they prudently saved for their
old age under the systems of the countries where they now reside.
A host of economic indicators show that the 2017 Tax Cuts and Jobs Act failed to achieve its key promise, a major increase in investments by business that would create more jobs. This is exactly the result that many, including those of us at DCReport, predicted.
The economy is slowing
down despite the promise that the Trump-Radical Republican tax cut would spur
massive new investment.
We call the 2017 tax
law the Trump-Radical Republican tax law because not one Democrat voted for the bill in the House or
Senate. It was also passed without a single public hearing. It
is a terrible law that benefits the richest among us at the expense of the
many—and needs to be fixed.
The Trump-Radical
Republican tax law not only cut the corporate tax rate from 35% of profits to
21%. It also allowed corporations to immediately deduct 100% of capital
expenditures instead of writing them off on their tax returns over periods from
three years to decades.
This kind of corporate
tax timing trick has been employed several times since the John F. Kennedy
administration in 1962. The effect each time was to create a brief surge in
corporate investment, called capital expenditures, followed by a slump.
Looked at over a
period of several years, total capital investment was unchanged.
The evidence today
shows that the economy is slowing down after expanding since early in Barack
Obama’s first term despite the promise that the Trump-Radical Republican tax
cut would spur massive new investment.
The National Association for Business Economics found
this month that the Trump-Radical Republican tax law has failed to increase
business investment and activity.
NABE president, Kevin
Swift, who is chief economist for the American Chemistry Council, said that 84%
of business economists it surveyed agreed that “one year after its passage the
2017 Tax Cuts and Jobs Act has not caused their firms to change hiring or
investment plans.”
There’s no reason to
expect an increase going forward. Rather, economic growth appears to be
slowing.
The association said
that a majority of those it surveyed in January don’t expect a recession this
year. However, fewer members expect robust economic growth in 2019.
It also noted a
slowdown in the growth of profit margins as well as rising costs for materials,
both signs of an economic expansion that is running out of fuel to keep going.
Manufacturing activity
has grown for 116 consecutive months, the last 23 of them under Trump,
the Institute for Supply Management’s latest report showed.
But Institute reports
also showed a sharp slowdown as 2018 ended despite the Trump-Radical Republican
tax cut favors for business. In December, the institute’s Purchasing Managers
Index (PMI) stood at 54.1, down sharply from 59.3 in November.
Much more worrisome
was an 11-point decline in the index for future orders, which fell in December
from 62.1 to 51.1. That suggests economic growth will slow, perhaps even stall,
later this year.
Expect some contraction in consumer spending in the first half of this year as many prosperous Americans get hit with much bigger than expected income tax bills.
Thanks to
theTrump-Radical Republican tax cut, millions of families in California,
Connecticut, Maryland, Massachusetts, New Jersey, New York, Virginia and other
high-tax states will owe thousands to tens of thousands of dollars more in
federal income tax for 2018 even if their income was unchanged from 2017.
That is because
individuals can deduct no more than $10,000 in state and local taxes, known as
SALT, on the tax returns due this Spring, and most homeowners will no longer be
able to deduct their mortgage interest.
The number of
taxpayers who will be eligible to itemize deductions is expected to fall from
about one in three to just one in 20.
The taxpayers most
affected live in Democratic-leaning blue states, which also happen to be those
with better paying jobs.
Had the Trump-Radical Republican tax cut bill been examined in public hearings, the public would have known about its partisan provisions, something the Framers of our Constitution warned against and which they tried to prevent with the uniformity clause in Article I, Section 8, Clause 1 of our Constitution, which says taxes should be uniform across the country.
Had the Trump-Radical Republican tax cut bill been examined in public hearings, the public would have known about its partisan provisions, something the Framers of our Constitution warned against and which they tried to prevent with the uniformity clause in Article I, Section 8, Clause 1 of our Constitution, which says taxes should be uniform across the country.
In addition, many
American expatriates are being hit hard by Trump and Congress because their
tax-deferred retirement savings plans in some countries are now treated as
immediately taxable by the United States.
That’s because the law did not distinguish between profits siphoned out of the United States by companies like Apple and the normal course of business for many expatriates complying with the laws where they now live.
That’s because the law did not distinguish between profits siphoned out of the United States by companies like Apple and the normal course of business for many expatriates complying with the laws where they now live.
Congress taxes
Americans, and American-based corporations, on their worldwide income. Other
major countries tax people only on income earned within their boundaries.
Similarly, the equity
built up in enterprises such as medical practices is treated as immediately taxable
under the Trump-Radical Republican tax law. These consequences illustrate a key
reason that tax law should not be drafted in secret and voted on without public
hearings.
Had Congress held
public hearings the tax problems created for American expatriate professionals
and business owner differences in the tax rules of other countries could have
been spotted and then prevented or minimized.
Now that he Democrats
control the House, which our Constitution requires be the origination point for
all tax laws, hearings could be held to ameliorate or even eliminate these
problems.