By Dick Sciaroni
As we near the end of another tax season, it’s time for a look back at the 2017 Tax Cuts and Jobs Act, aka TCJA. Is it making your life and the lives of ordinary Americans better? Or has it become yet another way for President Trump and Republicans to reward their wealthy at the expense of everyone else?
It’s been just over a year since the Republican Congress passed the much-touted TCJA. In the roll out of the bill, Americans were told to expect reductions in their taxes and more money in their pockets. Yet despite all the hoopla that surrounded its passage, one thing about TCJA should now be clear: the primary beneficiaries of the TCJA are not ordinary taxpayers, but investors, corporations and their executives. Indeed, recent media has been filled with stories of lost deductions and reduced tax refunds while mega-corporations pay little if any tax at all. And to add insult to injury, the price of imported goods has increased as the Trump Administration imposes tariffs on foreign goods – essentially taxes that Americans must pay for those imported goods.
So what has been the real impact of the TCJA – a boon for ordinary Americans, or a Republican boondoggle to funnel still more of America’s wealth into the pockets of the wealthy elite? The answer should be obvious.
True enough, under the TCJA, individual tax rates dropped up to 4%, but those cuts are not permanent. They expire in 2025. And while the personal deduction may have increased, other popular deductions are either gone or are severely restricted, e.g., interest on home equity loans not used for home improvements are gone and deductions for state and local income, property and sales taxes are capped at $10,000. That means that taxpayers in California, with high property values and a significant state income tax, will feel the impact of these limitations more than taxpayers in less wealthy states.
How did corporations fare under the TCJA? For beginners, they saw their tax rate fall from 35% to 21% — 10 percentage points greater than the highest drop in individual rates. But unlike individual rate reductions, those corporate rate cuts are permanent.
It gets worse.
When faced with complaints that corporate tax cuts represented a drastic increase in the deficit and a significant cut to government’s ability to fund ongoing operations (e.g., military, health and human services, education, research), TCJA supporters claimed that any increase in the deficit or reduction in government income would be offset by growth triggered by those same cuts. TCJA’s adherents, urged on by President Trump, told Americans that the TCJA would spur corporations to increase workers’ wages and hire more workers, thereby increasing economic growth and corporate incomes, thus assuring growth in government income while minimizing the risk of an increased federal deficit.
So what happened? It turns out that, in 2018, corporations spent a record-setting $1.1 trillion buying back their own stock. The primary beneficiaries of those purchases were corporation executives and investors. Investors saw the value of their holdings skyrocket. And as share price is a primary basis for setting corporate executives’ compensation, corporate executives leveraged the TCJA tax cuts into increased levels of compensation. They also used corporate tax savings to increase dividends to shareholders – another time-tested means corporate executives utilize to further increase their compensation.
If that were not enough, in 2018 some 84% of major firms did not alter their hiring practices or their investments in their businesses in response to the TCJA cuts. Based on an analysis of 51 S&P 500 companies, Bloomberg reported that an estimated 60% of corporate tax savings went to corporations’ shareholders while a paltry 15% went to employees.
And what about Trump’s claim that growth would offset the increased deficit? Government data now show that the TCJA has failed to deliver the 3 percent growth Trump promised – growth which is the agreed minimum needed to avoid adding further to the federal deficit. According to the Commerce Department’s Bureau of Economic Analysis, 2018 growth measured 2.9 percent, matching the peak Obama enjoyed in 2015. According to economic forecasters, that number will not increase but only decline.
Ask yourself: have things changed since the TCJA was enacted? Did it put significantly more money in your pocket? Or did it, as I suspect, simply make the wealthy richer at everyone else’s expense.
You be the judge. Then vote in 2020 as though it really matters . . . because it does.