When Donald Trump announced the signing of the Republican tax cut bill he said, “And just as I promised the American people from this podium 11 months ago, we enacted the biggest tax cuts and reforms in American history. Our massive tax cuts provide tremendous relief for the middle class and small business.”
As is usual when Trump’s lips moved, he lied. The US Treasury reports that, since 1968, three other tax cut bills have been bigger: Reagan’s 1981 cuts, and two bills passed by Obama to extend the Bush tax cuts. Between 1940 and 1967 three tax cuts were larger. Trump also lied when he said that the tax bill offered “tremendous relief for the middle class and small business.” According to the Huffington Post: “While most households would get a tax cut from the Republican tax bill, 82 percent of the benefits would go to the wealthiest 1 percent”.
Actually not everyone will be getting a tax cut; some at each tax level will actually pay more. Those in the middle class who are fortunate enough to pay less taxes than they did last year will be getting only very modest reductions in their tax bill while the rich and super rich will get windfalls. And remember how Trump has also been crowing that the huge corporate tax cuts and the opportunity for corporations to repatriate the funds that they have held abroad at decreased tax rates will “trickle down” to their workers? Well, the experts to a large extent take exception to those statements.
I subscribe to an investment newsletter called “Bob Brinker’s Marketimer”. You may be familiar with Brinker, a well-respected investment guru, from his weekly radio show, “MoneyTalk” on which he gives advice on how to reach “the land of critical mass” where you have enough money to live comfortably for the rest of your life. Here is what Brinker had to say in his May Marketimer newsletter about how corporations will use the many billions of dollars Congressional Republicans and Trump just put in their pockets.
“Corporations will continue to benefit from the combination of lower tax rates and the low rates on repatriated profits. Our view has been that most of the tax code and repatriation benefits will be consecrated in three areas: (one) stock buybacks; (two) an increase in dividends; and (three) mergers and acquisitions. We have seen this before, as the national Bureau of Research estimated that 79% of every dollar repatriated during the 2005 tax holiday went to shareholders, not employees. This special low rate on the 2005 repatriated dollars was 5.25%.
This time around, S&P 500 companies have already announced over $170 billion in new stock buybacks, and we expect this figure to grow much higher. Mergers and acquisition’s announcements are up 46% year to date when compared with the same period in 2017. The Park Tutor Jones Just Capital Survey of Russell 1000 companies shows that only 6% of the tax savings will go to current employees, mostly in the form of one-time bonus payments. There is every indication that the tax-cuts and repatriation benefits will be concentrated on increasing shareholder value through by stock buy backs, dividends and mergers. We regard this as a tailwind for the stock market going forward.”
In other works if you have a lot of money invested in the stock market, the corporate tax cuts and repatriation deals should improve the net worth of your investments by increasing your dividends and/or increasing the value of your stock. Those benefits could earn you tens or even hundreds of thousands of dollars. On the other hand if you work for one of the corporations that benefits from the tax bill you may get a small one-time bonus if you are lucky, or you many get nothing at all.
The bottom line is that while Trump campaigned like a populist, when it comes to tax policy he has acted like a typical Republican. He and the Congressional Republicans have provided the bulk of the tax cut benefits to corporations and wealthy individuals, especially those in the wealthiest 1% bracket, and then they have lied through their teeth about it. If there is any real benefit for the middle class, as usual it is expected to ‘trickle down” from the wealthy. Can we expect the typical Trump supporter to sooner or later figure out that they have again been screwed by Trump and Congressional Republicans? I’m afraid that the vast majority are probably not smart enough to know they have been had.
Cajun 5/15/2018