TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, August 16, 2018

NY Times: The Tax Cuts Helped Rich People

New York Times editorial, You Know Who the Tax Cuts Helped? Rich People:

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? ...

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.

NYT

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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Comments

I attended a breakfast yesterday with Congressman Randy Webbe (14th Dist, Texas) and he noted the passing of the recent tax act as one of the accomplishments of the Republican congress. There was also a piece in yesterday's blog to the effect that the NYT, Urban League, and other liberal sources are using outdated methodology in evaluating the effects of the tax act. It referred to some of the reporting on the act as being worse than misleading.

Posted by: William Hayes | Aug 17, 2018 7:20:30 AM

William: "It referred to some of the reporting on the act as being worse than misleading."

No surprise there. Freedom of the press includes yellow journalism.

There was another article here a TaxProf that indicated the tax reform bill has increased progressivity, which is an accomplishment considering the U.S. is already the most progressive industrialized economy in the entire OECD.

Also, as for blowing a hole in the deficit, which is certainly possible, how will we know until all the tax receipts are in for this year, which won't be until October 2019?

Posted by: MM | Aug 17, 2018 7:04:54 PM

Mr. Hayes, I don't believe what either side says any more. But it is hard to deny the stock buybacks in the chart. You have to ask, who benefits from stock buybacks? Follow the money.

Posted by: Dale Spradling | Aug 18, 2018 12:13:02 PM

Dale: "You have to ask, who benefits from stock buybacks?"

I and many other employees who also own shares in their own companies benefit, also. And we're not rich. I'm not saying that's common or uncommon, I don't know.

But who benefits really isn't anyone's business. After all, it isn't your money or the government's, is it?

Posted by: MM | Aug 19, 2018 9:51:53 PM