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Donald Trump and his Republican allies have two definitions of the term, “golden showers.” The first concerns a notorious—and as-yet unsubstantiated--claim from the so-called Russian dossier: Decorum prohibits elaborating further here. The second meaning of the term, however, describes any public policy—usually involving taxes—which overwhelmingly delivers its benefits to the very richest people in America. The plutocratic pleasure from this right-wing fetish is all the more ecstatic if raining cash on the gilded-class can be sold under the guise of winnings for workers.
So it is with the supposed “Tax Cuts and Jobs Act” (TCJA) Republicans in both houses of Congress have been trying to rush largely unseen to President Trump’s desk. This $1.5 trillion, 10-year liquid gold waterfall for the wealthy doesn’t trickle down to average Americans. Instead, its new income tax brackets, elimination of the Alternative Minimum Tax (AMT), steep reductions in corporate taxes, bonanza for “pass-through” businesses and abolition of the estate tax guarantee the richest investors and financially-favored families will take all—or, at least, almost all.
Now, you wouldn’t know any of this from the myth-making generated by the Trump White House and the usual suspects among right-wing economists. As Lawrence Summers and Brad Delong among others explained, GOP claims that “the Republican bills could boost GDP 3% to 4% long term” and “American annual household income could increase by an average of $4,000” are belied by history, the clear consensus of economists. After all, the strong 3.3 percent GDP number for the third quarter and low unemployment shows the Obama expansion has continued uninterrupted. Ten years after the start of the 2007 recession, actual U.S. economic output has finally reached its full potential. With interest rates low, corporate profits high and U.S. firms sitting on stacks of cash, capital stocks are simply not an issue.
Nevertheless, Republicans want to slash the statutory corporate tax rate from 35 to 20 percent. (It is worth noting that President Obama repeatedly proposed lowering it to 28 percent; Republicans in Congress balked.) Thanks to a wide range of tax breaks they already enjoy, American businesses face an effective tax rate of 18.6 percent, a figure comparable to most U.S. economic competitors. That’s why, as Bloomberg reported on Wednesday, “Major companies including Cisco Systems Inc., Pfizer Inc. and Coca-Cola Co. say they’ll turn over most gains from proposed corporate tax cuts to their shareholders, undercutting President Donald Trump’s promise that his plan will create jobs and boost wages for the middle class.” That doesn’t square with Trump’s promise this week in Missouri that “our focus is on helping the folks who work in the mailrooms and the machine shops of America.”
Instead of hiring more workers or raising their pay, many companies say they’ll first increase dividends or buy back their own shares.
Robert Bradway, chief executive of Amgen Inc., said in an Oct. 25 earnings call that the company has been “actively returning capital in the form of growing dividend and buyback and I’d expect us to continue that.” Executives including Coca-Cola CEO James Quincey, Pfizer Chief Financial Officer Frank D’Amelio and Cisco CFO Kelly Kramer have recently made similar statements.
“We’ll be able to get much more aggressive on the share buyback” after a tax cut, Kramer said in a Nov. 16 interview.
John Shin, a foreign exchange strategist at Bank of America Merrill Lynch, explained those unsurprising views:
“Companies are sitting on large amounts of cash. They’re not financially constrained. They’re still working for their shareholders, primarily."
Shin should know. This summer, he surveyed more than 300 major corporations regarding their plans for a tax overhaul. He and his colleagues looked specifically at the impact on the CEO’s plans after a “tax holiday” that would allow them to bring back money held overseas at a low tax rate. (The current Senate proposal calls for a 10 percent rate for companies repatriating some or all of their shares of the estimated $2.8 trillion in offshore profits.) What did the BofA/Merrill Lynch study find?
The No. 1 response? Pay down debt. The second most popular response was stock buybacks, where companies purchase some of their own shares to drive up the price. The third was mergers. Actual investments in new factories and more research were low on the list of plans for how to spend extra money.
But you don’t have take corporate CEO’s word for it that they will put their tax cut payday into the pockets of shareholders instead of workers. Just look at what they did the last time they had the chance. As the New York Times recalled:
After intense lobbying by big companies, Congress in 2004 passed the American Jobs Creation Act, which provided a one-time tax break for companies that wanted to repatriate their offshore profits. Companies brought home $312 billion at a rate of just 5.25 percent. Although the break was intended to spur investment and hiring, a plethora of studies showed that companies responded by spending billions buying back their shares, lifting their stock prices, and didn’t expand their American work forces.
Pfizer, for example, brought home $37 billion at the reduced rates — and shed 10,000 workers. Hewlett-Packard repatriated more than $14 billion, while eliminating more than 14,000 jobs.
As Senator Chris Van Hollen (D-MD) summed it up, the Republican Tax Cuts and Jobs Act is “a direct transfer of wealth from the American middle class to foreign investors.” Newsweek put the value of that transfer at roughly $520 billion:
If the plan passes through the Senate this month, foreigners will see more money than all middle-income households in the United States combined. That’s because foreign investors now own more than $6.5 trillion worth of U.S. equity and investment fund shares, and about 35 percent of all U.S. corporate stock, according to data from the Tax Policy Center. The GOP plan will lower corporate tax rates to 20 percent, benefiting foreign investors at the cost of at least $52 billion each year, or $520 billion over the next decade.
Foreign investors win big under GOP’s corporate tax cuts. Most Americans? Not so much.
So much for Donald Trump’s promise “America First” and his pledge Wednesday that his tax plan will help “the plumbers, the carpenters, the cops, the teachers, the truck drivers, the pipe fitters. The people that like me best.” What Trump called “the forgotten men and women of our country—people who work hard but no longer have a voice” during his acceptance of the Republican presidential nomination in Cleveland have a new name now. Marks.
As of this writing, the Senate version of the TCJA remained a moving target. Important differences remain compared to the House version, including the number and definition of tax brackets, the duration and sunsetting of different provisions, the revision or elimination of the estate tax as well as the impacts on the national debt. But whatever Senate Majority Leader Mitch McConnell (R-KY) and House Speaker Paul Ryan (R-WI) ultimately pass and agree to in conference, the benefits to Donald Trump and people like him will be staggering.
Take, for example, the Alternative Minimum Tax (AMT) both the Senate and House bills seek to kill. Originally introduced to prevent abuses by the richest taxpayers, the AMT now affects 5 million filers. It falls almost exclusively on families earning above $200,000 a year, with almost two-thirds of those earning between $500,000 and $1 million now paying the AMT. And in 2005, the one year over the last 20 in which we’ve seen anything of his tax returns, Donald Trump was among them. According to that year’s leaked return, Trump paid $38 million (or 25.3 percent) to Uncle Sam on his income of $150 million. But $31 million of Trump’s check to IRS was the result of the AMT. Without it, his tax bill would have been only $7 million, or just 4.7 percent.
The Trump family winnings under the GOP tax plan start—but don’t end—with the AMT.
Then there’s that issue of lowering the tax rate for “pass-through businesses.” As the Center on Budget and Policy Priorities (CBPP) explained, "Pass-through income is claimed by business entities that aren't subject to the corporate income tax, which currently has a top statutory rate of 35 percent (though most corporations pay an effective tax rate considerably lower than 35 percent). Pass-through income is business income that "passes through" the business and is instead reported on the individual tax returns of the business owners and taxed at the owners' tax rates." Just what are these businesses?
Many businesses, such as law firms, and groups of wealthy investors choose to be taxed as pass-through entities instead of as corporations and often do so to lower the overall taxes they owe. In recent decades, many businesses and their owners have reaped sizable tax savings by doing so.
Among those owners, as we learned from his tax attorneys during a 2016 financial disclosure, is one Donald J. Trump.
"You hold interests as the sole or principal owner in approximately 500 separate entities. These entities are referred to and do business as The Trump Organization. ... Because you operate these businesses almost exclusively through sole proprietorships and/or closely held partnerships, your personal federal income tax returns are inordinately large and complex for an individual."
Of course, Trump has plenty of company among the gilded class. As CBPP also documented when Trump proposed lowering the top rate to just 15 percent, "'pass-throughs' are not synonymous with 'small businesses' and "pass-through income is highly concentrated at the top":
The Trump pass-through proposal would be an expensive tax cut that would flow primarily to the wealthiest Americans. That's because more than two-thirds of pass-through business income flows to the highest-income 1 percent of tax filers.
Two-thirds of pass-through business income goes to the top 1 percent of earners.
The question for S corporations, C corporations, LLC’s and sole proprietorships and other pass-throughs isn’t whether Donald Trump and his GOP allies in Congress give them a massive tax cut, but how big. The House bill slashes the top rate from 39.6 to 25 percent. The current Senate draft, as Vox detailed, “shields those companies from the corporate tax, and adds a new 17.4 percent deduction on pass-through income for people who own the companies.” By 2012, about 95 percent of American businesses were structured this way. And as Vox noted, the Trump clan isn’t the only famous name among them:
“Most hedge funds, private equity funds, law, consulting, and accounting firms are partnerships; these businesses can be large, global enterprises,” Brookings’ Aaron Krupkin and Adam Looney write.
For instance, Renaissance Technologies, which is arguably the most successful hedge fund in history, having minted four billionaires or near-billionaires among its employees (including Trump mega-donor Robert Mercer), is a partnership and therefore a pass-through. That’s not a small business in any sense of the word.
If Congressional Republicans are determined to dump buckets of money onto the heads of Donald Trump, Robert Mercer and their ilk, the GOP plans for the estate tax seem certain to turn the United States Treasury into one giant pass-through for their heirs. Both the Senate and House version of the TCJA double the estate exemption to $11 million person ($22 million for a couple). But while the Senate’s change would sunset after 2025, the House repeals the 40 percent estate tax altogether beginning in 2024. That change wouldn’t just cost Uncle Sam over $25 billion in lost revenue annually. It means billions of dollars to family dynasties with names like Walton and Hilton—and Trump.
Killing the estate tax would be a $25 billion a year windfall for America’s richest families.
As you might recall, candidate Trump’s campaign finance disclosures claimed he was worth of $10 billion and earned $557 million between January 2015 and May 2016. His 2017 disclosure put his haul at up to $650 million for the previous year. So, if he is telling the truth about his net worth, The Donald's heirs could pocket more than $7 billion from his promise to do away with the estate tax now paid by only the richest 0.2 percent of family fortunes. If Congressional Republicans succeed at killing the estate tax, the likes of Tiffany Trump won’t have to worry about the tax man when her father shuffles off this mortal coil. Her siblings might be another matter: As Newsweek reported, Ivanka and Donald Jr. purportedly sought to cut their sister out of their father’s will.
Donald Trump wants to be sure his estate isn’t among them.
At the end of the day, Donald Trump, Mitch McConnell and Paul Ryan face two inescapable contradictions at the heart of their tax reform efforts. The first is the tension between the richer business tax cuts sought by those like Senator Ron Johnson (R-WI) and worries by supposed deficit hawks like Bob Corker (R-TN) over the hemorrhage of red ink. Sweetening the pot to win over either inevitably alienates the other. Second, the need to limit the additional national debt over the next decade (especially for the Senate) means that the GOP plans to make the corporate tax breaks permanent while individual benefits are temporary. As a result, the Joint Committee on Taxation found, the majority of Americans -- 62 percent -- would get a tax cut of at least $100 in 2019, but just 16 percent by 2027. And as the nonpartisan Congressional Budget Office (CBO) forecast, over time lower and middle-income Americans would get pummeled:
People with incomes less than $30,000 would ostensibly pay more in taxes when compared to the benefits they receive under the bill, the CBO found, due in part to reduced government outlays to support health care for such low-income individuals.
Those earning less than $30,000 would be worse off under the plan by 2019, given the decrease in benefits versus their tax contributions, while those earning less than $40,000 would join the group of people who are worse off by 2021 and those earning less than $75,000 by 2027, the analysis estimates.
By 2027, CBO found, people making $40,000 to $50,000 would pay a combined $5.3 billion more in taxes, while the group earning $1 million or more would get a $5.8 billion cut.
Nothing under discussion in either chamber of Congress looks like it will help working Americans. To help fund its windfall for the wealthy, the House proposes eliminating the deduction for state and local income taxes (the Senate would end the break for property taxes, too), a move transparently designed to brutalize budgets in high-tax, high-service blue states. The GOP would end deductions for teachers’ purchase of school supplies, graduate students’ stipends and student loan interest. The repeal of the Obamacare individual insurance mandate would leave 13 million more Americans without health insurance while driving premiums upward. Automatic spending cuts in the Senate bill, potential made worse by “deficit-triggers” slashing outlays further still, could gut spending on Medicaid and Medicare. (As he made clear this week, Florida Republican Sen. Marco Rubio views this as a feature, not a bug.) USC tax law professor Edward Kleinbard warned of the needless pain the Tax Cuts and Jobs Act would inflict:
“When you put all these pieces together, what you’re left with is we are squandering a giant sum of money. It’s not aimed at growth. It is not aimed at the middle class. It is at every turn carefully engineered to deliver a kiss to the donor class.”
The only way for Republicans to hide that kiss is simply to pretend it won’t happen. Greg Sargent lamented the grotesque cynicism of it all:
It will just underscore how many different ruses are necessary to paper over the basic con at the center of it all: Republicans are giving the wealthy a large permanent tax cut while selling it as mainly a large middle-class tax cut and as something that won’t bust the deficit.
For his part, Donald Trump has been on message since well before he moved into the Oval Office. In September 2015, he boasted his tax proposal was “going to cost me a fortune—which is actually true.” This September, he proclaimed “the rich will not be gaining at all with this plan” and added, “No, I don't benefit. I think there's very little benefit for people of wealth.” In St. Charles, Missouri on Wednesday, the President of the United States deployed his gift for fiction this way:
“This is going to cost me a fortune, this thing, believe me,” Mr. Trump said, in the midst of a frequently meandering 45-minute speech to a festive crowd of 1,000. Then he invoked Senator Chuck Schumer of New York, the Democratic leader. “This is not good for me. Me, it’s not so — I have some very wealthy friends. Not so happy with me, but that’s OK. You know, I keep hearing Schumer: ‘This is for the wealthy.’ Well, if it is, my friends don’t know about it.”
Oh, they know about it, all right. In corporate board rooms, executive suites, high-rise corner offices and posh mansions (if not Moscow hotel rooms), Donald Trump’s wealthy friends and the GOP donor class are eager for their golden showers to begin. And their message to Republicans in Washington is a simple one.
Let it rain.
