New
study confirms ordinary Americans got fleeced by the Trump tax bill
Sorry, America’s middle
class: President Donald Trump’s signature tax code overhaul has not generated
any meaningful new economic growth that wasn’t already underway, the
nonpartisan Congressional Research Service (CRS) has found.
The new numbers inject
further complexity into a contentious and ongoing debate around the landmark
tax legislation as to who actually benefited from its passage.
But the study should also offer additional clarity: With hard numbers now available on the economy’s performance in the first full year of the legislation, it’s easier than ever to talk instead about who got what and how — and the answers, so far, aren’t pretty.
But the study should also offer additional clarity: With hard numbers now available on the economy’s performance in the first full year of the legislation, it’s easier than ever to talk instead about who got what and how — and the answers, so far, aren’t pretty.
Large corporations with
shiny accounting departments ended up being the largest beneficiaries of the
tax bill’s largesse, with the rate of tax they actually pay dropping by half in
2018, according to the CRS analysis.
But the vanishingly insignificant comparative break Trump’s law gave workaday people lays the game bare. This tax bill is already reshaping the real-world economy in ways that limit the prospects of ordinary people, potentially reinforcing the structural inequities that adversely impact democratic society.
But the vanishingly insignificant comparative break Trump’s law gave workaday people lays the game bare. This tax bill is already reshaping the real-world economy in ways that limit the prospects of ordinary people, potentially reinforcing the structural inequities that adversely impact democratic society.
Trump and his congressional allies had forecast massive jumps in GDP growth and working-family incomes from the package. None materialized in year one.
Annual growth hit 2.9% – identical to the 2015 mark, well below the 3.3% the Congressional Budget Office forecast when it sought to predict the tax bill’s impact in April of 2018, and right in line with what the CBO had predicted the economy would have done without Trump’s corporate-tax munificence.
The report’s findings
underscore the deceitful nature of the administration’s first-term sales pitch.
Working people
were supposed to benefit from
the slashed corporate income tax rate and related rules tweaks intended to lure
offshored profits back into the U.S. economy.
American companies weren’t hiding $3 trillion in profit outside the country out of malice, the argument went. Rather, they were afraid of seeing it taxed too sternly, and would happily bring it home to make productive and equitable use of it just as soon as they felt it was safe from the taxman.
American companies weren’t hiding $3 trillion in profit outside the country out of malice, the argument went. Rather, they were afraid of seeing it taxed too sternly, and would happily bring it home to make productive and equitable use of it just as soon as they felt it was safe from the taxman.
Some business heads
dutifully followed this script in small and symbolic ways shortly after the law
was signed, issuing year-end bonuses to their frontline employees and
accompanying them with heavy fanfare in the press.
But even the high-end estimates of those bonus payments account for less than 3% of the money corporate payers got handed back to them by the tax law. Those bonuses may have had as much to do with firms’ recognition that falling unemployment rates would make it easier for unhappy workers to leave for greener pastures, the CRS report notes.
But even the high-end estimates of those bonus payments account for less than 3% of the money corporate payers got handed back to them by the tax law. Those bonuses may have had as much to do with firms’ recognition that falling unemployment rates would make it easier for unhappy workers to leave for greener pastures, the CRS report notes.
So what happened to the
other 97% of the money corporate accountants were handed by the government?
A trillion dollars of it went to shareholders, as the law triggered a record wave of stock buybacks – an unproductive back-scratching activity that keeps the money firmly ensconced in upper-class hands that have little reason to spend that new cash back into the economy where working stiffs make their living.
A trillion dollars of it went to shareholders, as the law triggered a record wave of stock buybacks – an unproductive back-scratching activity that keeps the money firmly ensconced in upper-class hands that have little reason to spend that new cash back into the economy where working stiffs make their living.
This grand act of class
solidarity between wealthy elected officials, wealthy corporate executives, and
wealthy investors was entirely predictable.
Corporate tax repatriation enticements and rates-slashing typically generate
this kind of unproductive reshuffling of capital – thereby reinforcing the
working class’s sense that they aren’t even being dealt into the hand.
Such stark differences
in outcomes for the masses and the privileged few help fuel the populist anger
that’s on the march across nearly every developed democracy on the planet.
Wages – a more stable
indicator of how much wealth capitalists are allowing to pass through to their
labor than any one-off bonus – offer no respite from
the gloomy CRS diagnosis. Blue-collar wages rose just 1.2% in 2018 after
accounting for inflation, the report’s authors found, which “indicated that
ordinary workers had very little growth in wage rates.”
Out of every three taxpayers,
roughly two owed the government less this tax year than they had prior to the
new tax law. Many people who got a tax cut in year one appear not to have noticed,
as the New York Times’ Jim Tankersley and Ben Casselman reported recently,
because the annualized cut was spread across a year’s worth of paychecks
instead of lumped together at year end.
But whether working
families noticed the new money or not, the combined effect of those modest
middle-class cuts and the massive corporate giveaways that make up the bulk of
the Trump tax law’s price tag were supposed to load the economy’s engine with
high-octane juice.
The working theory was that this “2 Fast 2 Furious” boom would rain new revenue down on the treasury with such swift thoroughness that the public would neither notice nor care that a large amount of its collective money got handed over to wealthy multinational companies. The cut, its proponents insisted, would pay for itself.
The working theory was that this “2 Fast 2 Furious” boom would rain new revenue down on the treasury with such swift thoroughness that the public would neither notice nor care that a large amount of its collective money got handed over to wealthy multinational companies. The cut, its proponents insisted, would pay for itself.
A year on, the tax bill
is miles behind the trajectory required to make that promise plausible. The
authors of the CRS study calculate that the tax law’s 2018 performance
generated “5 percent or less of the growth needed to fully offset the revenue
loss” in year one.
“Much of the tax cut was
directed at businesses and higher-income individuals who are less likely to
spend,” the CRS researchers wrote. “On the whole, the growth effects tend to
show a relatively small (if any) first-year effect on the economy.”
That mathematically
correct conclusion misses an important wider point about public policy choices.
The bill has had a huge effect on what kind of economy we have, if not on the size of that economy as measured in the stats these analysts parse.
Inasmuch as the costs of the bill could have been spent on other people if their government had made other choices, the tax law is redistributing wealth upward, providing the wealthy investor class a jolt of money they have no reason to spend.
The bill has had a huge effect on what kind of economy we have, if not on the size of that economy as measured in the stats these analysts parse.
Inasmuch as the costs of the bill could have been spent on other people if their government had made other choices, the tax law is redistributing wealth upward, providing the wealthy investor class a jolt of money they have no reason to spend.
Everyone else saw a
relative pittance – enough money to make a difference to a working family, but
a tiny fraction of the public money federal lawmakers chose to give to private
companies and their shareholders through these changes – and none of the wider
opportunity-sparking growth promised by the people marketing the bill 18 months
ago.
Tax cuts that don’t pay
for themselves are not automatically illegitimate. When such subsidies are
bestowed on Main Street economies, they can boost the virtuous cycles of
consumer spending that working-class communities need in order to provide a
stable economic foundation.
The tax cut former House
Speaker Paul Ryan (R-WI) put on Trump’s desk has instead subsidized the
wealthy, just as the GOP intended.