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Defying the Odds

Defying the Odds
New book about the 2016 election.

Sunday, May 24, 2020

Tax Cut Politics

In Defying the Odds, we discuss the tax issue in the 2016 campaign.  The update  --  published last year --includes a chapter on the 2018 midterms. and explains why the Trump tax cut backfired on Republicans.

Don Lee at LAT:
The lower corporate tax rate, plus the elimination of taxes on most foreign business income, would make the U.S. more competitive globally, it was argued. With the tax savings, companies would ramp up domestic investments. U.S. multinational firms would repatriate cash stashed overseas and invest domestically, and it would discourage a flight of capital to offshore destinations, ultimately benefiting workers in America.
But economists widely agree that the tax cuts, while providing a small stimulus to growth particularly in 2018, failed on its core objectives.
Instead of ramping up capital spending and investments or turning away from offshoring, many U.S. companies focused on hiking dividends and buying back their own stock, which chiefly benefited high-income investors. Buybacks hit record levels in 2018 and remained strong in 2019.
...
As for dampening offshore investments, research has shown evidence the opposite happened. The tax overhaul included several new provisions that actually made it more desirable for U.S. multinational firms to invest in tangible assets overseas because that would give them a bigger tax break.
Nicholas Kristof at NYT:
While President Trump and his allies in Congress seek to tighten access to food stamps, they are showing compassion for one group: zillionaires. Their economic rescue package quietly allocated $135 billion — yes, that’s “billion” with a “b” — for the likes of wealthy real estate developers.

My Times colleague Jesse Drucker notes that Trump himself, along with his son-in-law, Jared Kushner, may benefit financially from this provision. The fine print was mysteriously slipped into the March economic relief package, even though it has nothing to do with the coronavirus and offers retroactive tax breaks for periods long before Covid-19 arrived.

Senator Sheldon Whitehouse of Rhode Island and Representative Lloyd Doggett of Texas, both Democrats, have asked the Trump administration for any communications that illuminate how this provision sneaked into the 880-page bill. (Officially, the provision is called “Modification of Limitation on Losses for Taxpayers Other Than Corporations,” but that’s camouflage; I prefer to call it the “Zillionaire Giveaway.”)

About 82 percent of the Zillionaire Giveaway goes to those earning more than $1 million a year, according to Congress’s Joint Committee on Taxation. Of those beneficiaries earning more than $1 million annually, the average benefit is $1.6 million.