SUMMARY
Trump’s tax bill was a massive giveaway to corporations and the wealthy. It exploded the national debt while harming middle class homeowners, the poor, and the families of deceased veterans.
Trump saddled more than a million troops with a 6.2 percent additional payroll tax in 2021; more than a million military members will be forced to participate in Trump's payroll tax deferral, and then pay that money back in Q1 of 2021
2018: Following The Passage Of The TCJA, Federal Government Corporate Tax Revenue Declined To The Nominal Lowest Level Since 2002.
[Federal Reserve Bank of St. Louis, accessed 01/27/20]
2018: Corporate Tax Revenues Fell By 31 Percent, Almost Twice Official Budget Projections For Trump Tax Cuts. According to Politico, “Federal tax payments by big businesses are falling much faster than anticipated in the wake of Republicans’ tax cuts, providing ammunition to Democrats who are calling for corporate tax increases. The U.S. Treasury saw a 31 percent drop in corporate tax revenues last year, almost twice the decline official budget forecasters had predicted. Receipts were projected to rebound sharply this year, but so far they’ve only continued to fall, down by almost 9 percent or $11 billion.” [Politico, 06/13/19]
FY 2019: Tax Revenue Is $225 Billion Less Than It Was Projected To Be In 2017 Before Trump’s Tax Cuts. According to The Washington Examiner, “After two years, President Trump's tax cuts are not on track to pay for themselves, the latest Treasury data released Friday suggest. Total federal government revenues ended up lower in 2019 than was projected before the passage of the GOP tax overhaul in 2017. Then, in 2017, the nonpartisan Congressional Budget Office projected that fiscal 2019 revenues, without the tax cuts, would be $3.69 trillion. Instead, revenues with the tax cuts were only $3.46 trillion. To be certain, the difference, $225 billion, cannot be attributed solely to the tax cuts. Other economic factors have influenced economic growth over the past two years. For example, the tariffs put in place as part of Trump's trade wars likely counteracted the stimulative [sic] effect of the tax cuts.” [Washington Examiner, 10/26/19]
FY2020: The CBO Cut Projections For Corporate Tax Revenue By $11 Billion As Corporate Profits Are Expected To Come In Lower Than Anticipated. According to Politico Pro, “The Congressional Budget Office is cutting its estimate of how much corporations will pay in total taxes this year. In a biannual report on the government’s finances, the nonpartisan agency said today it expects corporate receipts this year to come in at $234 billion. That’s down four percent from the $245 billion it had predicted in August, and would be up slightly from 2019’s actual total of $230 billion. Tax payments by big businesses have been a touch issues since Republicans slashed the corporate rate as part of their 2017 tax cuts. CBO said there were crosscutting trends but that a big factor for the reduced projection is its expectation that corporate profits will be lower than anticipated. [Politico Pro, 01/28/20]
The TCJA Cut The Corporate Tax Rate From 35 Percent To 21 Percent, Which Companies Used To Give Money To Their Shareholders. According to Vox, “The tax law’s centerpiece is its record cut in the corporate tax rate, from 35 percent to 21 percent. At the time of its passage, most of the bill’s Republican supporters said the cut would result in higher wages, factory expansions, and more jobs. Instead, it was mainly exploited by corporations, which bought back stock and raised dividends.” [Vox, 01/24/20]
Despite The TCJA’s 20 Percent Deduction For Pass-Through Businesses, Private Equity Firms Have Decided To Convert To C-Corps Because The Corporate Rate Was Cut So Significantly. According to The Geraci Law Firm, “In the real estate and lending industry, one of the more popular statutory provisions within TCJA is the 20% QBI deduction for real estate investment trusts (‘REITs’). The other area where it is gaining traction is the conversion of entities from partnerships to C-corporations due to the tax rate dropping from 35% to 21%. Several publicly traded private equity firms are making the jump to convert their businesses, most notably, Apollo Global Management LLC and KKR & Co LP.” [Geraci Law Firm, 09/23/19]
Since The Enactment Of The Tax Cuts And Jobs Act, The Median Effective Global Tax Rate For S&P 500 Companies Has Fallen From 25.5 Percent To 19.8 Percent. According to The Wall Street Journal, “The U.S. tax overhaul has lowered tax rates for many companies, and many others that were already toward the bottom of the scale have been able to stay there so far, a Wall Street Journal analysis shows. The lower rates follow tax-law changes Congress passed at the end of 2017. Since then, the Journal analysis shows, the median effective global tax rate for S&P 500 companies declined to 19.8% in the first quarter of 2019 from 25.5% two years earlier. That marked the third straight quarter below 20% and is consistent with the goals and structure of the tax overhaul, which lowered the federal corporate rate to 21% from 35%. The law’s authors wanted to help U.S. multinationals compete in foreign markets and aid domestic companies with high tax burdens, while reducing the value of tax breaks and making it harder to achieve single-digit tax rates.” [Wall Street Journal, 07/21/19]
Q2 2018 – Q2 2019: S&P 500 Companies Have Paid A Global Effective Tax Rate Lower Than 20 Percent, Despite The Fact That The U.S. Corporate Tax Rate Is 21 Percent Thanks To “A Variety Of Tax Breaks.” According to The Wall Street Journal, “Companies typically don’t make public what they pay the Internal Revenue Service each tax year. But public companies do disclose their effective tax rates: the measure of taxes incurred under generally accepted accounting principles as a share of pretax income. Those rates reflect global results and include foreign and state taxes, not just what companies owe the U.S. Treasury Department. Quarterly results can bounce around, swayed by one-time events. For many big companies, however, U.S. federal taxes are the most important component. A quarter of S&P 500 companies reported effective global tax rates below 21% in each of the past four quarters, the Journal analysis found. Companies can wind up paying less than the statutory rate, even on U.S. income, thanks to a variety of breaks that lower their tax bills, including a deduction for exports and credits for corporate research. The Journal’s analysis, using figures from financial-data firm Calcbench Inc., omits tax rates reported for the last three months of 2017 and the first three months of 2018—quarters in which many companies booked big, one-time changes driven by the tax law. Results were similar when real-estate companies, which tend to report very low tax rates, were omitted. (See methodology note for more detail.) A separate analysis, from S&P Dow Jones Indices, found similar shifts in income-tax rates for S&P 500 companies since the tax law’s enactment.” [Wall Street Journal, 07/21/19]
Q1 2019 – Q2 2019: Bank Of America, Citigroup, Goldman Sachs, JP Morgan Chase, And Wells Fargo Saw Their Tax Rates Decline To 22 Percent From About 30 Percent In 2016. According to The New York Times, “The five largest banks in the United States reaped tens of billions of dollars in profits in the first half of the year, thanks in part to a strong economy and to the lingering effects of President Trump’s tax cuts. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo have all seen their tax rates decline to 22 percent or less as a result of the cuts, compared with rates of around 30 percent three years ago, one of the most consistent sources of strength apparent in quarterly earnings reports issued this week.” [New York Times, 07/17/19]
Q2 2019: Citigroup Beat Quarterly Earnings Expectations, “Mostly” Due To Lower Corporate Tax Rates And Stock Buybacks. According to The New York Times, “Citigroup may have gotten the most significant lift from a lower tax rate. The bank’s chief financial officer, Mark Mason, said the strength in Citi’s adjusted per-share earnings — $1.83, higher than Wall Street analysts’ expectations — was mostly a result of the lower rate and of a decline in its outstanding shares. The decline stemmed from Citi’s repurchasing shares.” [New York Times, 07/17/19]
2019: The Biggest Six Banks Saw Even Bigger Savings From Trump’s Corporate Tax Cuts, Which Totaled $32 Billion Through The First Two Years Of It Being In Effect. According to Bloomberg, “Savings for the top six U.S. banks from President Donald Trump’s signature tax overhaul accelerated last year, now topping $32 billion as the lenders curbed new borrowing, pared jobs and ramped up payouts to shareholders. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley posted earnings this week showing they saved $18 billion in 2019, more than the prior year, as their average effective tax rate fell to 18% from 20%. Bloomberg News calculated the haul by comparing the lower tax rates to what they paid before the law took effect, which averaged 30%.” [Bloomberg, 01/16/20]
2019: The Six Biggest Banks Posted Net Income Of $120 Billion. Before Trump’s Corporate Tax Cuts They Had Never Made $100 Billion. According to Bloomberg, “The tax savings have spurred the banks to record profit. The six firms posted $120 billion in net income for 2019, inching past 2018’s mark. They had never surpassed $100 billion before the tax cuts.” [Bloomberg, 01/16/20]
January 2020: Corporate Investment Was Lower Than At The Time Of The TCJA’s Passage. According to Vox, “Promises that the tax act would boost investment have not panned out. Corporate investment is now at lower levels than before the act passed, according to the Commerce Department. Though employment and wages have increased, it is hard to separate the effect of the tax act from general economic improvements since the 2008 recession.” [Vox, 01/24/20]
FY 2017 – FY 2018: After FedEx Founder And CEO Lobbied For Corporate Tax Cuts To Stimulate Capital Investment, FedEx Reduced Its Tax Burden From ~$1.5 Billion To Zero Despite Investing Less Than It Promised In December 2017. According to The New York Times, “In the 2017 fiscal year, FedEx owed more than $1.5 billion in taxes. The next year, it owed nothing. What changed was the Trump administration’s tax cut — for which the company had lobbied hard. The public face of its lobbying effort, which included a tax proposal of its own, was FedEx’s founder and chief executive, Frederick Smith, who repeatedly took to the airwaves to champion the power of tax cuts. ‘If you make the United States a better place to invest, there is no question in my mind that we would see a renaissance of capital investment,’ he said on an August 2017 radio show hosted by Larry Kudlow, who is now chairman of the National Economic Council. Four months later, President Trump signed into law the $1.5 trillion tax cut that became his signature legislative achievement. FedEx reaped big savings, 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. But it did not increase investment in new equipment and other assets in the fiscal year that followed, as Mr. Smith said businesses like his would.” [New York Times, 11/17/19]
New York Times Analysis Showed Negative Correlation Between Corporate Tax Burden Reduction And Increase In Capital Investment. According to The New York Times, “Nearly two years after the tax law passed, the windfall to corporations like FedEx is becoming clear. A 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.” [New York Times, 11/17/19]
[New York Times, 11/17/19]
2019: The U.S. Faced An Investment Recession In Addition To A Manufacturing One. According to Bloomberg, “The GDP report included more evidence that the U.S. was plagued by an investment recession as well as a manufacturing one last year. Gross private domestic investment fell 1.9% in the fourth quarter from a year earlier, while investment in non-residential structures fell 7% and equipment was down 1.5%. Kevin Cummins, senior U.S. economist at NatWest Markets, said the slump in imports also appeared to reflect weaker consumer demand, one of the big drivers of the U.S. economy traditionally. ‘If consumption is weakening, you’re going to have weaker imports, which ironically, should be a net positive for top-line GDP,’ he said. ‘But I think it’s a sign of weaker consumer demand more than anything else.’” [Bloomberg, 01/30/19]
Q4 2019: Continued Cutbacks In Business Investment Contributed To The Longest Period Of Investment Decline Since 2009. According to Bloomberg, “The longest pullback in U.S. business investment since 2009 shows little sign of ending, which could weigh further on the economy this year just as the once-gangbusters household spending that had been picking up the slack also slows down. Thursday’s fourth-quarter data on gross domestic product showed steady top-line expansion of 2.1% that reflected a big boost from falling imports and masked a weaker composition of growth. Nonresidential investment fell an annualized 1.5% in the third straight decline, while consumer spending decelerated to a 1.8% gain, below projections after the strongest consecutive quarters since 2015.” [Bloomberg, 01/30/20]
Q4 2019: Core GDP Grew At The Slowest Rate In Four Years, Even As Increased Government Spending Caused A Significant Boost. According to Bloomberg, “Thursday’s data showed a closely watched gauge of underlying demand, which strips out the volatile trade and inventories components of GDP, expanded 1.6% in the quarter. Without government purchases, that number looked even weaker at only 1.4%, the slowest in four years.” [Bloomberg, 01/30/20]
Q4 2019: Continued Cutbacks In Business Investment Contributed To The Longest Period Of Investment Decline Since 2009. According to Bloomberg, “The longest pullback in U.S. business investment since 2009 shows little sign of ending, which could weigh further on the economy this year just as the once-gangbusters household spending that had been picking up the slack also slows down. Thursday’s fourth-quarter data on gross domestic product showed steady top-line expansion of 2.1% that reflected a big boost from falling imports and masked a weaker composition of growth. Nonresidential investment fell an annualized 1.5% in the third straight decline, while consumer spending decelerated to a 1.8% gain, below projections after the strongest consecutive quarters since 2015.” [Bloomberg, 01/30/20]
Q4 2019: Core GDP Grew At The Slowest Rate In Four Years, Even As Increased Government Spending Caused A Significant Boost. According to Bloomberg, “Thursday’s data showed a closely watched gauge of underlying demand, which strips out the volatile trade and inventories components of GDP, expanded 1.6% in the quarter. Without government purchases, that number looked even weaker at only 1.4%, the slowest in four years.” [Bloomberg, 01/30/20]
If Trump And Republicans Had Implemented A Per-Country Minimum Tax Instead Of A Global One, U.S. Revenue Gains Would Have Been 2.5 Times Larger. According to a paper by Kimberly A. Clausing published on the Social Science Research Network, “However, the global nature of the minimum tax, in comparison to a per-country minimum tax, substantially reduces its impact. Indeed, the global nature of the minimum tax makes the U.S. the least desirable place to book income for many multinational companies, because if they do not have sufficient foreign tax credits to offset minimum tax due, even high-taxed foreign income is preferable to U.S. income when foreign tax credits shield haven income from the GILTI tax. In contrast, under a per-country minimum tax, reductions in haven tax bases would be about twice as large, and U.S. revenue gains from the minimum tax would be more than two and a half times higher.” [Kimberly A. Clausing – Social Science Research Network, 4, 11/21/18]
Because The First Ten Percent Return On Assets In Foreign Income Is Exempt From Taxation Under The TCJA, Companies Are Incentivized To Move Assets Out Of The Country. According to a Paper by Kimberly A. Clausing published on the Social Science Research Network, “Despite the shift to a territorial system under the TCJA, there are significant provisions under the law that may actually result in a higher net burden on foreign income for U.S. multinational companies. While there is no tax due upon repatriation, there is a minimum tax due currently on global intangible low-taxed income, or ‘GILTI’ income. While the first ten percent return on assets is exempt from the GILTI tax (providing a perverse incentive to increase real investments abroad), profits beyond that amount are taxable at half the U.S. tax rate.” [Kimberly A. Clausing – Social Science Research Network, 14, 11/21/18]
Because The GILTI Rate Is Lower Than The Corporate Rate In The U.S., Companies Are Incentivized To Book As Much Of Their Profit Outside Of The Country As Possible. “The GILTI Acts As A Support For The Tax Revenues Of Our Trading Partners.” According to a paper by Kimberly A. Clausing published on the Social Science Research Network, “But will the GILTI provision cause profit to be shifted into the United States? In practice, that outcome is questionable. Because the TCJA uses a global minimum tax, tax obligations in higher tax countries can offset the minimum tax due on haven income. Therefore, companies can blend their haven and non-haven foreign income, reducing or perhaps eliminating payments of U.S. minimum tax, and achieving a lower tax rate than the U.S. rate. While the global minimum tax discourages profit shifting to havens, it is effectively an ‘America last’ tax policy from the perspective of revenue, because both low-tax and high-tax foreign countries are tax-preferred relative to the United States, if a company is in deficit credit position with respect to GILTI income. (That distinction will be discussed shortly.) Indeed, the GILTI acts as a support for the tax revenues of our trading partners, reducing tax competition pressures. That feature may speak in its favor, as argued by Morse (2018), because it helps combat a race to the bottom in corporate tax competition.”[Kimberly A. Clausing – Social Science Research Network, 15, 11/21/18]
December 2019: The Treasury Released Rules Exposing U.S.-Based Multinational Companies To Less Taxes. According to The Wall Street Journal, “U.S.-based multinationals will be less exposed to certain U.S. taxes after the Treasury Department issued new rules implementing two major pieces of the 2017 tax law. The regulations, unveiled on Monday, will help ease the burden of two separate minimum taxes that were designed to put a floor under corporate tax collections. Senior Treasury officials said rules largely finalize regulations proposed late last year, while also addressing U.S. multinational firms’ concerns.” [Wall Street Journal, 12/02/19]
Pass-Through Businesses’ Tax Is Paid As Individual Income Tax Instead Of Corporate Tax. Trump Alone Owns Hundreds Of These Businesses. According to Vox, “Pass-throughs are single-owner businesses, partnerships, limited liability companies, (known as LLCs) and special corporations called S-corps. Most real estate companies are organized as LLCs. Trump owns hundreds of them, and the Center for Public Integrity’s analysis found that 22 of the 47 members of the House and Senate tax-writing committees in 2017 were invested in them. Pass-throughs can be found in any industry. They pay no corporate taxes and steer their profits as income to business owners or investors, who are taxed only once at their individual rates. Despite their favored treatment as a business vehicle, the 2017 tax act did them another favor: It allowed 20 percent to be deducted off the top of the pass-through income for tax purposes.” [Vox, 01/24/20]
The TCJA Allowed, And The Treasury Confirmed The Ability To Deduct Up To 20 Percent Of Income Through Pass-Through Businesses, Some Trusts, And Some Estates. According to Forbes, “The first deduction is the one that likely brought you to this article: the ‘20% pass-through deduction.’ In its most simple terms, Section 199A grants an individual business owner -- as well as some trusts and estates -- a deduction equal to 20% of the taxpayer's qualified business income.” [Forbes, 01/19/19]
The Pass-Through Deduction Also Applies To Real Estate Investment Trusts (REITs) And Publicly Trade Partnerships (PTPs). According to Forbes, “Once this deduction is computed and limited, as appropriate, it is added to the SECOND deduction offered under Section 199A; one that is every bit as simple as the pass-through deduction is complex: a deduction for 20% of the taxpayer's qualified REIT dividends and publicly traded partnership (PTP) income for the year.” [Forbes, 01/19/19]
Trump’s Tax Cuts Added A Deduction Of Up To 20 Percent On $344 Billion In Income From Real Estate Holdings. According to The Wall Street Journal, “Rental real estate is renowned for its many tax breaks, and the 2017 tax overhaul added a new one. Landlords who want to claim it for 2019 should be planning now, because they may need to send 1099 forms early next year. The benefit is the so-called 199A deduction of 20%. It applies to business income—including rental income—earned by many sole proprietorships, limited-liability companies, partnerships and S corporations. These entities pass through profits and losses directly to their owners’ individual tax returns, instead of paying tax at the corporate level. Lots of Americans hold rental real estate in these types of firms. For 2017, about 20 million filers reported $344 billion in rental income on Schedule E of their individual returns, according to Internal Revenue Service data cited by the National Apartment Association, an industry group.” [Wall Street Journal, 10/18/19]
Ron Johnson, A Member Of The Senate Finance Committee Held, With His Wife, Millions Of Dollars Worth Of Pass-Through Corporations, Paying His Household Between $250,000 And $2.1 Million Per Year. According to Vox, “No doubt Johnson, with his wife, held interests that year in four real estate or manufacturing LLCs worth between $6.2 million and $30.5 million, from which they received income that year between $250,000 and $2.1 million, according to his financial disclosure form.” [Vox, 01/24/20]
Early 2016 – September 2017: Trump Campaigned-And Insisted While In Office-On Closing The Carried Interest Loophole, A Common Way For Private Equity Firms To Reduce Tax Liability. According to Propublica, “From early in the 2016 presidential campaign, Donald Trump swore he’d do away with the so-called carried-interest loophole, the notorious tax break that allows highly compensated private-equity managers, real estate investors and venture capitalists to be taxed at a much lower rate than other professionals. ‘They’re paying nothing, and it’s ridiculous,’ Trump said in August 2016. ‘These are guys that shift paper around and they get lucky.’ They were, he concluded, ‘getting away with murder.’ As recently as late September, his chief economic adviser, ex-Goldman Sachs executive Gary Cohn, insisted that the administration was set on closing what’s also referred to as the ‘hedge-fund loophole,’ though hedge funds profit from it less than private-equity firms. ‘The president remains committed to ending the carried interest deduction,’ Cohn told CNBC. ‘As we continue to evolve on the framework, the president has made it clear to the tax writers and Congress. Carried interest is one of those loopholes that we talk about when we talk about getting rid of loopholes that affect wealthy Americans.’” [Propublica, 11/03/17]
2010: Schwarzman Compared Closing The Carried Interest Loophole—Which Saved Him An Estimated $100 Million Per Year—To The Nazi Invasion Of Poland. According to Propublica, “When it comes to the new tax bill, that influence surely included Stephen Schwarzman, chief executive of the Blackstone Group, one of the largest private-equity firms in the country. In 2010, when Congress, then controlled by Democrats, came close to closing the loophole, Schwarzman compared the proposal to the Nazi invasion of Poland. (He later apologized.) Schwarzman alone is estimated to have saved close to $100 million per year as a result of the treatment of carried interest, which makes up the vast bulk of his roughly $700 million annual income in recent years.” [Propublica, 11/03/19]
January 2018: Trump’s Corporate Tax Cuts Were Projected To Increase The Value Of Private-Equity-Owned U.S. Companies By 3-17 Percent. According to The Wall Street Journal, “The values of profitable private-equity-owned U.S. companies should climb between 3% and 17% on average as the law moves to lower the corporate tax rate to 21% from 35% and to give companies the ability to deduct capital spending upfront. Those two provisions are expected to trump the higher cost of debt that will result from the legislation, Hamilton Lane found.” [Wall Street Journal, 01/24/18]
Former Head Of The JCT Ed Kleinbard: “If You Are A Real Estate Developer, You Never Pay Tax.” According to Vox, “Besides the law’s benefits to real estate pass-throughs, real estate in general was hugely favored by the tax law, allowing property exchanges to avoid taxation, the deduction of new capital expenses in just one year versus longer depreciation schedules, and an exemption from limits on interest deductions. ‘If you are a real estate developer, you never pay tax,’ said Ed Kleinbard, a former head of Congress’s Joint Committee on Taxation.” [Vox, 01/24/20]
While The TCJA Restricted Like-Kind Exchanges, Real Estate Eligibility Was Preserved. According to The IRS, “The Internal Revenue Service today reminded taxpayers that like-kind exchange tax treatment is now generally limited to exchanges of real property. The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Effective Jan. 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible. Like-kind exchange treatment now applies only to exchanges of real property that is held for use in a trade or business or for investment. Real property, also called real estate, includes land and generally anything built on or attached to it. […] Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.” [Internal Revenue Service, 11/19/18]
The TCJA Allowed Businesses To Deduct The Full Cost Of Qualified Investment, Twice What Was Allowed Under Previous Laws. According to The Tax Foundation, “TCJA allowed businesses to deduct the full cost of qualified new investments in the year those investments are made (referred to as 100 percent bonus depreciation or ‘full expensing’) for five years. Bonus depreciation then phases down in 20 percentage point increments beginning in 2023, and is fully eliminated after 2026. Prior law allowed 50 percent bonus depreciation in 2017, decreasing the percentage in subsequent years and fully eliminating it after 2020.” [Tax Foundation, 2018]
Trump Appointed Regulators Ruled Financing For Sports Stadiums In Opportunity Zones Qualify For Tax Breaks. According to Crain’s of New York, “For decades, the U.S. has required banks to steer a portion of their money to people in poor neighborhoods. Now, under proposed rule changes, banks may finance upgrades to sports stadiums, call it helping the poor—and potentially even get a generous tax break. That scenario might seem oddly specific, but it’s what two regulators appointed by President Donald Trump said last week they may allow as they undertake the most significant rewrite of the Community Reinvestment Act in a quarter-century. The agencies drafted a long list hypothetical ways banks could seek to meet their obligations, including this sentence on page 100 of their proposal: ‘Investment in a qualified opportunity fund, established to finance improvements to an athletic stadium in an opportunity zone that is also an LMI census tract.’ (LMI refers to low- or moderate-income.)” [Crains of New York, 12/16/19]
Institute On Taxation And Economic Policy: 379 Profitable Fortune 500 Companies Paid Effective Tax Rate Of 11.3 Percent, 54 Percent Of What They Would Owe On All Reported Profits. 91 Paid $0 In Taxes. According to yahoo Finance, “Under the Tax Cuts and Jobs Act, 91 profitable Fortune 500 companies paid $0 in taxes on U.S. income in 2018, according to a new report from the Institute on Taxation and Economic Policy (ITEP). Across all 379 profitable companies in the Fortune 500 the effective tax rate was just 11.3%, just over half the 21% tax rate under the law. ‘In 2018, the 379 companies earned $765 billion in pretax profits in the United States,’ the report noted. ‘Had all of those profits been reported to the IRS and taxed at the statutory 21% corporate tax rate, the 379 companies would have paid almost $161 billion in income taxes in 2018.’ Instead, the companies only paid $86.8 billion, roughly 54% of what they owed.” [Yahoo Finance, 12/16/19]
2018 Was One Of The Three Lowest Years Since 1980, Including During The Great Recession, For Corporate Tax Revenue As A Share Of Federal Expenditures. According to The Washington Post, “In the United States, corporate taxes have plunged dramatically as a share of the federal budget, from more than 4 percent to around 1 percent, putting strain on other sources of revenue. Only two other times since 1980 have corporate tax revenue represented such a small share of the federal budget, including in 2009 during the Great Recession.” [Washington Post, 12/16/19]
After Trump’s Tax Cuts Passed, Bonuses Spiked, Only To Fall To The Lowest Level In Five Years By September 2019. According to The Dallas Morning News, “After the tax cuts, bonuses for private-sector workers rose almost 12% compared with the third quarter of 2017, according to data from the National Compensation Survey by the U.S. Bureau of Labor Statistics. By late 2018, however, those gains were gone, and employer costs for bonuses had declined 25%. ‘There is zero evidence that the highly-publicized bonuses were any kind of lasting change,’ said Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy in Washington. He said it’s too soon to measure some effects of the tax law, given that it’s been in place for only two years and data often lags. ‘But one thing we know is that the bonuses were a temporary thing and not a lasting measure of generosity on the part of these companies,’ Gardner said. After the tax cuts, bonuses rose to 2.8% of total pay, the highest level since at least 2004. That mark held for three quarters, and then the share declined to 2.1%, where it has remained for a year. In September 2019, the most recent period for the BLS data, the share of pay going to bonuses was the lowest in five years.” [Dallas Morning News, 01/14/20]
The Bonuses Paid To Workers After Trump’s Tax Cuts Were Less Than 3 Percent Of The Total Corporate Tax Savings. According to The Dallas Morning News, “The extra cash from tax savings and repatriated funds helped companies invest record sums in buying back their shares. If the tax-cut bonuses topped $4 billion, as one group said, that would be less than 3% of the corporate tax cut and a smaller share of repatriated funds, the Congressional Research Service said.” [Dallas Morning News, 01/14/20]
2017: While Lobbying For The TCJA’s Passage, AT&T Promised To Invest $1 Billion And Create 7,000 Jobs. According to ARS Technica, “AT&T in November 2017 pushed for the corporate tax cut by promising to invest an additional $1 billion in 2018, with CEO Randall Stephenson saying that ‘every billion dollars AT&T invests is 7,000 hard-hat jobs. These are not entry-level jobs. These are 7,000 jobs of people putting fiber in ground, hard-hat jobs that make $70,000 to $80,000 per year.’” [ARS Technica, 05/14/19]
January 2018 – January 2020: Since The TCJA Went Into Effect, AT&T Cut 37,818 Jobs As They Cut Capital Spending By $1 Billion. According to The Communications Workers of America, “Today’s AT&T earnings report shows that AT&T continues to cut jobs and reduce capital expenditures even as the company announced record operating and free cash flow for 2019 and more than $5 billion in stock buybacks in the past four months. The company has cut 37,818 jobs since the Tax Cuts and Jobs Act (TCJA) went into effect in 2018, including 4,040 in the fourth quarter of 2019. Capital expenditures declined by more than $1 billion in 2019 as compared to 2018.” [Communications Workers of America, 01/29/20]
2018: American Companies Paid Out More Than $1 Trillion In Stock Buybacks, A Record By More Than $200 Billion. According to CNN, “Corporate America celebrated the first full year under the new tax law by rolling out a record-setting $1 trillion of stock buybacks. US companies, led by Lowe's (LOW) and AbbVie (ABBV), rewarded shareholders by unveiling $34.4 billion in buybacks last week, according to TrimTabs Investment Research. That lifted repurchase announcements above $1 trillion for the first time ever, TrimTabs said, exceeding the prior record of $781 billion set in 2015.” [CNN, 12/17/18]
2017 – 2019: J.P. Morgan Spent 98 Percent Of Its Profits On Buybacks And Dividends. According to The Wall Street Journal, “JPMorgan has paid out $87 billion in buybacks and dividends over the past three years—98% of its profits, roughly in line with rivals. Most of that has been through stock repurchases.” [Wall Street Journal, 02/02/20]
2017: Republicans Began The Tax Reform Process Talking About “Revenue-Neutral Tax Reform,” Pivoting To Tax Cuts At The Direction Of Business Interests. According to The Tax Policy Center, “At the start of 2017, congressional Republicans often spoke about revenue-neutral tax reform. The revenue losses from tax cuts would be offset by rolling back tax breaks or introducing other taxes, most notably a destination-based cash flow tax—sometimes called the border-adjusted tax. The destination-based cash flow tax attracted intense opposition from business groups, especially retailers, and was eventually dropped. Lawmakers then pivoted to a combination tax cut and reform. The Tax Cuts and Jobs Act (TCJA) was the result.” [Tax Policy Center, 2018]
June 2018: Revenue Results From The First Six Months Of The TCJA Lined Up With The Penn Wharton’s December 2017 Projection, Which Added Between $1.9 Trillion And $2.2 Trillion In Debt Over Ten Years. According to The Penn Wharton Budget Model, “In PWBM’s report from December, 2017, we showed that by 2027, even after accounting for economic growth spurred by the TCJA, the overall impact would still result in an increase in debt between $1.9 and $2.2 trillion. By 2040 we show that the deficit would increase between $2.2 and $3.5 trillion. Figure 1 below depicts how the TCJA will impact federal revenues and debt over the next few decades. In fact, as of June 2018 tax receipts met with PWBM projections.” [Penn Wharton Budget Model, 10/18/18]
CBO And Joint Committee On Taxation: Using Conventional Budget Scoring Methods, The TCJA Would Add $1.65 Trillion In Debt Over A Decade, Later Adjusted To $1.9 Trillion. According to The Tax Policy Center, “During legislative debate, the most-cited estimate was that the TCJA would increase deficits by about $1.5 trillion over 10 years. This figure comes from the Joint Committee on Taxation (JCT) and Congressional Budget Office’s (CBO’s) conventional score. JCT projected that the law would reduce revenues by $1.65 trillion from 2018 to 2027. That deficit increase would be partly offset, CBO and JCT projected, by $194 billion in reduced spending, primarily on health insurance. In a subsequent update, CBO estimated the conventional budget effect at almost $1.9 trillion over the same period. That increase reflected an updated view of certain features of the law as well as new economic projections.” [Tax Policy Center, 2018]
2018: The CBO Added The Cost Of Servicing The Additional Debt To The TCJA’s Budget Score, Resulting In An Increase In Total Debt To A Range Of $1.9 Trillion To $2.3 Trillion. According to The Tax Policy Center, “To finance TCJA’s tax cuts, the government will issue additional Treasury securities and pay additional debt service. Including that spending, the deficit effects of TCJA are larger. CBO’s 2018 update, for example, puts the conventional deficit increase from TCJA at almost $2.3 trillion over its first decade. The corresponding dynamic score is a $1.9 trillion increase.” [Tax Policy Center, 2018]
In Order To Meet The Requirements Imposed Under Budget Reconciliation, The TCJA Had To Be Deficit Neutral. As A Result, Many Popular Provisions Expire Within Ten Years. If They Are Extended, They Would Add $480 Billion In Additional Debt Over 10 Years. According to The Tax Policy Center, “To satisfy budget process requirements, lawmakers decided to sunset some provisions of the TCJA. Most cuts to individual income taxes, for example, expire at the end of 2025. Business expensing for new investment is also temporary. As conventionally scored, the act thus increased deficits from 2018 through 2026 and decreased them thereafter. If lawmakers decide to extend all the expiring provisions, however, that would add about $480 billion to deficits through 2027 and a growing amount thereafter. The TCJA was enacted under a process known as reconciliation. Among other things, reconciliation requires that a bill not increase the deficit beyond the 10-year budget window. At the time, JCT and CBO concluded that the act satisfied that requirement on a conventional scoring basis. Indeed, they found that the law reduced deficits starting in 2027. If TCJA’s expiring provisions are eventually made permanent, however, deficits will be persistently higher.” [Tax Policy Center, 2018]
1986: Congress Passed The Kiddie Tax As A Way To Prevent Parents From Transferring Wealth To Their Children As A Way To Avoid Taxes. According to The Wall Street Journal, “Congress passed the Kiddie Tax in 1986. Until then a parent could, say, give a child appreciated stock and the child could sell it, pay tax at lower rates, and use the proceeds to pay for college tuition or a Corvette. The 1986 provision levied the Kiddie Tax on a broad range of children’s ‘unearned’ income above an exemption, which currently is $2,200. Above that amount, the children owed tax at the parents’ rate. The levy has never applied to a youngster’s earnings from being a camp counselor or designing websites.” [Wall Street Journal, 05/10/19]
2017: In A Quest To Simplify The Tax Code, Republicans Changed The Kiddie Tax Rate From The Parent’s Rate To Trust Tax Rates, Resulting In A 37 Percent Tax On Income Over $12,751. According to The Wall Street Jouranl, “Many features of the 1986 Kiddie Tax were complex, however. To simplify, the 2017 overhaul switched the Kiddie Tax rate from the parents’ rate to trust tax rates. These kick in at a very low level of taxable income: For 2019, the top rate of 37% takes effect at just $12,751.” [Wall Street Journal, 05/10/19]
2018: After The Death Of Her Husband, Rebecca Headings Paid A Top Rate Of 12 Percent On Her $55,000 In Income. Her Son Paid 37 Percent On His $29,300 In Annual Survivor’s Benefit. According to The Wall Street Journal, “Rebecca Headings’s husband, U.S. Navy Senior Chief Petty Officer Gary Headings, died of a heart attack at age 39 in 2017. After Mr. Headings’s death, his son began getting an annual survivor’s benefit paid to many families who have lost active-duty service members—often called Gold Star families. Last year, that benefit was about $29,300. But his son, age 6, owed nearly $7,000 in federal taxes on it. ‘At first I was stunned, and then angry. My child’s tax rate is higher than mine,’ says Ms. Headings, a social worker in Virginia Beach. Ms. Headings’s top rate on her 2018 income of less than $55,000 was 12%. Her son’s top rate is 37%. In past years, her son’s tax bill would have been far lower. But a 2017 change to the so-called Kiddie Tax often boosts rates on ‘unearned’ income received by children of middle- and low-income families—including her son.” [Wall Street Journal, 05/10/19]
College Students From Low Income Families Who Receive Financial Aid Technically Owe Taxes On It At Trust Rates Under The TCJA’s Kiddie Tax. According to The Wall Street Journal, “The Kiddie Tax revision also threatens college students from lower-income families who receive financial aid for expenses other than tuition and supplies. By law such income is taxable, says Tim Steffen, a tax specialist with Robert W. Baird & Co. If a family is in a low tax bracket, then a child receiving taxable aid could wind up in a much higher bracket—with no money to pay the tax. Mark Kantrowitz, the publisher of Savingforcollege.com, estimates that more than three million students could be affected.” [Wall Street Journal, 05/10/19]
By 2027, The Average Tax Cut Would Be $160 And 99 Percent Of The Benefit Would Go To The Top 5 Percent Of Earners. According to The Tax Policy Center, “In 2027, the overall average tax cut would be $160, or 0.2 percent of after-tax income (table 3), largely because almost all individual income tax provisions would sunset after 2025. On average, taxes would be little changed for taxpayers in the bottom 95 percent of the income distribution. Taxpayers in the bottom two quintiles of the income distribution would face an average tax increase of 0.1 percent of after-tax income; taxpayers in the middle income quintile would see no material change on average; and taxpayers in the 95th to 99th income percentiles would receive an average tax cut of 0.2 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution would receive an average tax cut of 0.9 percent of after-tax income, accounting for 83 percent of the total benefit for that year.” [Tax Policy Center, 12/18/17]
FY 2018: Tax Refunds For Households Taxpayers Earning Between $250,000 And $500,000 Increased By An Average Of 11 Percent. According to The Wall Street Journal, “The fresh data shows that while refund statistics barely budged for lower- and middle-income workers, real movement occurred toward the upper end of the income distribution. Average refunds for taxpayers making between $100,000 and $250,000 dropped 10%, while average refunds for those between $250,000 and $500,000 rose by 11%.” [Wall Street Journal, 07/02/19]
2018: For The First Time On Record, The 400 Richest American Households Payed A Lower Tax Rate Than Any Other Income Group. According to an opinion piece by David Leonhardt in The New York Times, “For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data.” [David Leonhardt-New York Times, 10/06/19]
The TCJA Doubling Of Estate Tax Exemption Will Exempt All But 1,800 Households, And Give Each Of Those Households A Tax Cut Of $4.4 Million Each. According to The Center on Budget And Policy Priorities, “The 2017 tax law doubles the amount of an estate’s value that’s exempt from the estate tax, from $11 million per couple ($5.5 million per individual) to $22 million per couple ($11 million per person). That will: Reduce the share of estates facing the tax to fewer than 1 in 1,000. Even before the tax law was enacted, only the wealthiest 2 in 1,000 estates faced the estate tax. Policymakers have dramatically raised the exemption level in recent decades (from $675,000 per person in 2001), so very few estates are large enough to be taxable. Now only the largest 1,800 estates each year will face the estate tax. Give each of the 1,800 very largest estates a tax cut of $4.4 million per couple. Doubling the exemption will eliminate the estate tax for estates worth between $11 million and $22 million per couple, and give the remaining 1,800 estates worth over $22 million per couple a tax cut of $4.4 million (40 percent of the additional $11 million in assets that would be exempt).” [Center on Budget and Policy Priorities, 06/01/18]
[Center on Budget and Policy Priorities, 06/01/18]
2020: Americans Are Projected To Pay 2.1 Percent Of The $764 Billion They Will Inherit This Year In Taxes. Less Than One Seventh The Rate They Pay On Work And Savings. According to Bloomberg, “One way the rich get richer is through inheritance, and they’re barely paying taxes on it. Americans are projected to inherit $764 billion this year and will pay an average tax of just 2.1% on that income, New York University law professor Lily Batchelder estimates in a paper published Tuesday by the Brookings Institution. By contrast, the estimated tax on work and savings is 15.8%, more than seven times higher. Many higher-income workers pay far more, with the top marginal rate now 37% plus payroll taxes.” [Bloomberg, 01/28/20]
Trump’s Tax Cuts Expanded The Child Tax Credit To Families Earning As Much As $400,000 Per Year. According to The New York Times, “The 2017 tax bill, President Trump’s main domestic achievement, doubled the maximum credit in the two-decade-old program and extended it to families earning as much as $400,000 a year (up from $110,000).” [New York Times, 12/16/19]
2019: The IRS Missed Out On Billions Of Dollars In Revenue As Only .45 Percent Of Personal Income Tax Returns Were Audited, Less Than Half Of The 1.1 Percent In 2010. According to The Wall Street Journal, “Individual taxpayers are half as likely to get audited as they were in 2010, after tax enforcement by the Internal Revenue Service fell to the lowest level in at least four decades. The IRS audited 0.45% of personal income-tax returns in fiscal 2019, down from 0.59% in 2018 and marking the eighth straight year of decline, according to a report released on Monday. In 2010, the IRS audited 1.1% of tax returns. The report doesn’t break down audits by income category or provide details about how much revenue they generate. The steady erosion of tax enforcement has been driven by years of cuts in the agency’s budget along with a heavier workload. The result, according to tax experts, is that the Treasury is letting billions of dollars annually go uncollected, even as budget deficits rise.” [Wall Street Journal, 01/06/20]
[Wall Street Journal, 01/06/20]
1967 – 2018: In The Time The Census Bureau Has Tracked Income Inequality, It Never Reached A Higher Level Than It Did In 2018. According to The Washington Post, “Income inequality in the United States has hit its highest level since the Census Bureau started tracking it more than five decades ago, according to data released Thursday, even as the nation’s poverty and unemployment rates are at historic lows. The gulf is starkest in wealthy regions along both coasts such as New York, Connecticut, California and Washington, D.C., as well as in areas with widespread poverty, such as Puerto Rico and Louisiana. Equality was highest in Utah, Alaska and Iowa. And while the nation is in the midst of its longest economic expansion, nine states saw spikes in inequality from 2017 to 2018: Alabama, Arkansas, California, Kansas, Nebraska, New Hampshire, New Mexico, Texas and Virginia. The Gini index measures wealth distribution across a population, with zero representing total equality and 1 representing total inequality, where all wealth is concentrated in a single household. The indicator has been rising steadily for several decades. When the Census Bureau began studying income inequality in 1967, the Gini index was 0.397. In 2018, it climbed to 0.485.” [Washington Post, 09/26/19]
Increased Taxes On Homeowners And Higher Deficits Caused By Trump’s Corporate Tax Cuts Lead To 4 Percent Reduction In Home Prices Over Seven Years (Average Outstanding Mortgage Length). According to ProPublica, “Here’s how it works. Zandi took what financial techies call the ‘present value’ of the property tax and mortgage interest deductions that homeowners will lose over seven years (the average duration of a mortgage) because of changes in the tax law and subtracted it from the value of the typical house. That results in a 3% decline in national home values below what they would otherwise be. The remaining one percentage point of value shrinkage, Zandi says, comes from the higher interest rates that he says will result from the higher federal budget deficits caused by the tax bill. He estimates that rates on 10-year Treasury notes, a key benchmark for mortgage rates, will be 0.2% higher than they would otherwise be, which in turn will make mortgage rates 0.2% higher. Even though interest rates on 10-year Treasury notes are at or near record lows as I write this, they would be even lower if the Treasury were borrowing less than it’s currently borrowing to cover the higher federal budget deficits caused by Trump’s tax bill. If Zandi’s interest-rate take is correct — it’s true by definition, if you believe in the law of supply and demand — even homeowners who aren’t affected by the inability to deduct all their real estate taxes and mortgage interest costs are affected by the tax bill. How so? Because higher interest rates for buyers translate into lower prices for sellers and therefore produce lower values for owners.” [ProPublica, 10/10/19]
Defense Finance And Accounting Office: Automatic Enrollment In The Deferral Cannot Be Superceded, Unlike For The Majority Of Civilian Government Employees. According to Military Times, “It’s a deferral of the payroll tax, designed to put more money into the pockets of employees, at least temporarily, in an effort to ease some economic problems caused by the COVID-19 pandemic, according to the Trump memo. But as of pay periods starting Jan. 1, service members (and all employees affected) will repay the money over a four-month period ending April 30. Trump’s memo does require the Secretary of the Treasury to explore ways — including legislation — to eliminate the requirement to repay those taxes. But as of now, the money will have to be repaid. Military members and civilian employees can’t opt out of the deferral; it happens automatically, according to the Defense Finance and Accounting Office. Most federal agencies appear to be participating in the payroll tax deferrals, requiring their employees to take the tax deferral, according to a letter from Everett B. Kelley, national president of the American Federation of Government Employees, to Office of Management and Budget Director Russell Vought. He urged the administration to allow federal workers to choose whether they wanted the tax deferral, or prefer to opt out. Reports are that few civilian employers are choosing to participate in the payroll tax cut deferral program.” [Military Times, 09/08/20]
January 2021 – March 2021: A Service Member Who Earned $8,666.66 Per Month In 2020 Would Pay An Additional $537.33 Per Month In Payroll Taxes. According to Military Times, “For example: A service member earning $8,666.66 per month would see an increase of $537.33 per month in take-home pay during the September-December payroll tax deferral, or $268.67 per pay period. DFAS officials haven’t yet determined how much will be collected per paycheck starting in January. But if the same schedule is followed as during the deferrals through December, that service member would be paying back the same amount per pay period. With the raise, the net effect would be less of a bite per paycheck, depending on the tax bracket.” [Military Times, 09/08/20]