Why do we need this? cont'd
The Tax Cuts and Jobs Act of 2017 was the most significant change in the United States tax code since Ronald Reagan’s Tax Cuts and Jobs Act of 1986.
Without question, some sort of corporate tax reform was desperately needed. For decades, the U.S. corporate tax code had been ridiculously complicated and inefficient, and the statutory tax rate was much higher than in other Organization for Economic Cooperation and Development (OECD) economies. < Note: Even though the statutory tax rate was higher on paper, relentless lobbying efforts, complex deductions, and loopholes brought the effective marginal tax rate closer to our international competition, but that only caused even greater confusion and inconsistency. >
Our previous system incentivized corporations to borrow too much money, leave money in overseas subsidiaries, and/or potentially move operations overseas altogether. Yes, we definitely needed reform, but the Republican bill went way too far.
An analysis by The New York Times discovered that “in the 2017 fiscal year, FedEx owed more than $1.5 billion in taxes. The next year, it owed nothing...FedEx reaped big savings (from the tax cut), bringing its effective tax rate from 34 percent in fiscal year 2017 to less than zero in fiscal year 2018, meaning that, overall, the government technically owed it money.”
This is probably not as bad as it sounds, because surely FedEx expanded their payroll and increased investment in new equipment and other assets in the years after its big windfall (or, as Alan Graf, FedEx’s chief financial officer, called it, “a mighty fine Christmas gift”), right!?!
Nope. “The company spent less in the 2018 fiscal year than it had projected in December 2017, before the tax law passed. It spent even less in 2019. Much of its savings has gone to reward shareholders: FedEx spent more than $2 billion on stock buybacks and dividend increases in the 2019 fiscal year, up from $1.6 billion in 2018, and more than double the amount the company spent on buybacks and dividends in fiscal year 2017.”
The New York Times analysis “of data compiled by Capital IQ shows no statistically meaningful relationship between the size of the tax cut that companies and industries received and the investments they made. If anything, the companies that received the biggest tax cuts increased their capital investment by less, on average, than companies that got smaller cuts.”
“FedEx’s use of its tax savings is representative of corporate America. [As of November 2019,] companies had already saved upward of $100 billion more on their taxes than analysts predicted when the law was passed. Companies that make up the S&P 500 index had an average effective tax rate of 18.1 percent in 2018, down from 25.9 percent in 2016, according to an analysis of securities filings. More than 200 of those companies saw their effective tax rates fall by 10 points or more. Nearly three dozen, including FedEx, saw their tax rates fall to zero or reported that tax authorities owed them money.
From the first quarter of 2018, when the law fully took effect, companies have spent nearly three times as much on additional dividends and stock buybacks, which boost a company’s stock price and market value than on increased investment.”
A study by the Institute on Taxation and Economic Policy, a nonpartisan tax policy organization, reveals that, in 2020, 55 corporations had zero federal tax liability on over $40 billion in profits. Zero. These companies include Nike, Dish Network, and FedEx (again). Not only did these companies not have to pay federal income taxes, they actually received tax rebates of $3.5 billion, giving them an effective tax rate of roughly -9 percent.
As of April 2021, twenty-six of these companies had paid zero federal income tax on over $77 billion in profits since the Republican tax cut. Yet they have received almost $5 billion in rebates, making their effective three-year tax rate negative 6 percent. Seriously, they have got to be kidding us with this.
It cannot be denied that the Republican tax cuts cost far too much for far too little. By passing this law, the Trump administration and congressional Republicans sold the vast majority of Americans out. Straight up.
Worse, it’s not like they didn’t know they were selling Americans a bill of goods. At the time, plenty of people were waving huge red flags. They knew.
A report from the Tax Policy Center at the time said that “the new tax law will raise deficits and make the distribution of after-tax income more unequal...The new tax law simplifies taxes for some people, but also adds complexities and exacerbates compliance issues in other areas.”
The Penn Wharton Budget Model (PWBM), a nonpartisan, research-based initiative located at the Wharton Business School, was more specific: “The Tax Cuts and Jobs Act of 2017 increases debt by between $1.9 trillion to $2.2 trillion over the next decade.”
The Center on Budget and Policy Priorities, a progressive think tank that analyzes the impact of federal and state government budget policies, had this to say: “The evidence indicates that the bulk of the benefits from a corporate rate cut will go to those at the top, with only a small share flowing to low and moderate-income working families.”
This, on top of the fact that the United States has been losing significant revenue from tax breaks for the wealthy for years. Another report from the Institute on Taxation and Economic Policy says that “since 2000, tax cuts have reduced federal revenue by trillions of dollars and disproportionately benefited well-off households.”
The report continued, “From 2001 through 2018, significant federal tax changes have reduced revenue by $5.1 trillion, with nearly two-thirds of that flowing to the richest fifth of Americans. The cumulative impact on the deficit during this period is $5.9 trillion, including interest payments. By the end of 2025, the tally of tax cuts will grow to $10.6 trillion. Nearly $2 trillion of this amount will have gone to the richest 1 percent. By then, the total impact on the deficit will be $13.6 trillion, including interest payments.”
The researchers also point out that their “analysis does not include hundreds of billions of dollars in so-called tax cut ‘extenders’ for corporations and other businesses that Congress has periodically enacted under each administration.”
Congressional Republicans and Donald Trump absolutely knew their promises would not be kept. They just didn’t care. As usual, they decided to listen to lobbyists instead.
Corporations, trade associations and special interest groups spent $9.6 million to lobby Congress on issues related to taxes in the first three quarters of 2017 alone. But the fourth quarter said hold my beer. In that one quarter alone, the National Association of Realtors spent $22.2 million, the Business Roundtable spent $17.3 million, and the U.S. Chamber of Commerce spent $16.8 million.
Public Citizen, a nonprofit consumer rights advocacy group and think tank, found that “6,243 lobbyists were listed on lobbying disclosure forms as working on issues involving the word ‘tax’ through the first three quarters of 2017. That is equal to 57 percent of the nearly 11,000 people who have reported engaging in any domestic lobbying activities at all in 2017. Put another way, this equals more than 11 lobbyists for every member of Congress.”
We're fairly certain that when that many hands are in the cookie jar, the cookies are going to be badly crumbled. So, did corporations get their money’s worth from all of this lobbying? You betcha!
In fact, poor Corporate America didn’t feel they got quite enough in the original tax bill, so they continued their lobbying efforts full blast even after it passed. And boy, did that work out for them! In fact, those lobbyists worked so hard that large companies got even more tax breaks in the CARES Act. Yes, you read that correctly.
Big business — and wealthy Americans — got an additional $174 billion in tax relief in the initial economic rescue package. These breaks include increasing the amount of deductions companies can take on the interest of their debt, allowing net operating losses to reduce tax liabilities, and another slash in capital gains taxes (which can be applied retroactively, for up to two years! Yay!).
And then there is this. Another New York Times analysis discovered that “through a series of obscure regulations, the U.S. Treasury carved out exceptions to [the CARES Act] that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay…
One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.”
Hmmm...so these banks don’t like paying taxes for some odd reason, so Donald Trump’s Treasury Secretary Steven Mnuchin unilaterally decided to exempt these banks from paying them? Where can we sign up for that deal?
The New York Times again: “Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce (their tax burden) by up to $50 billion.”
Set aside for a moment that the U.S. Treasury in no way has the unilateral power to do such a thing — making this whole move unconstitutional — but we should probably question why Steven Mnuchin was so hell-bent on protecting foreign banks.
The answer to that question came on February 23, 2021, when The Washington Post reported that Steven Mnuchin is starting an investment fund that is raising money from Persian Gulf sovereign wealth funds and other international sources. As a matter of fact, when the Capitol riots broke out on January 6th, Mnuchin was on a “diplomatic” trip to the Middle East and Africa — a trip paid for by American taxpayers — meeting with Egypt, Israel, Qatar, Sudan, the United Arab Emirates, and Saudi Arabia.
Just one day after leaving government, Mnuchin filed paperwork in Delaware to start his new firm. These guys have some nerve.