Oh Dear! Did the Trump Tax Cuts Really "Pay For Themselves"?

Concerning your question as to my views on the corporate tax portion of the TCJA, here's my take, as I have written a little on the topic in past years:

Yes, new numbers do show that revenues from the corporate tax are sharply up over this past year. I don't know whether that will be sustainable in future years. Time will tell. But maximizing revenue is not even what I'm most concerned about here, as I think the corporate income tax is one of the worst forms of taxation and impedes the economy with more deadweight loss than almost any other tax.

https://en.wikipedia.org/wiki/Deadweight_loss

In my view, the most important feature of the corporate tax cut is that it ceased (or at least stopped strongly incentivizing) inversions where firms would shift activity to associated entities booking profits in lower-tax jurisdictions. As a result of the new legislation, as the WSJ piece and others have pointed out, a lot of capital was repatriated to within US shores.

Here's something else progressives forget (or do know, but disingenuously demagogue):

Although some of the incidence of the corporate income tax lands on capital (shareholders), much of it is actually borne by consumers and employees. The ratio of the relative burdens, of course, varies over time and across industries, and with the mobility of capital and labor -- as well as the elasticity of supply/demand for products and services. (Countless papers and theses have been written on this topic over the last couple of decades.)

Another disingenuous argument is that the rate didn't need to be lowered because the effective rate for most companies was much less than 35%. That completely ignores all the shifting and maneuvering many firms had to do to get their effective rate lower, much of which had adverse effects on the efficiency of their operations.

At the very least, the rate needed to be lowered to something more or less typical of most OECD nations, which it was.

That lowers the amount of deadweight loss imposed on the economy by an inefficient, poorly designed tax.

.

Concerning your question as to my views on the corporate tax portion of the TCJA, here's my take, as I have written a little on the topic in past years:

Yes, new numbers do show that revenues from the corporate tax are sharply up over this past year. I don't know whether that will be sustainable in future years. Time will tell. But maximizing revenue is not even what I'm most concerned about here, as I think the corporate income tax is one of the worst forms of taxation and impedes the economy with more deadweight loss than almost any other tax.

https://en.wikipedia.org/wiki/Deadweight_loss

In my view, the most important feature of the corporate tax cut is that it ceased (or at least stopped strongly incentivizing) inversions where firms would shift activity to associated entities booking profits in lower-tax jurisdictions. As a result of the new legislation, as the WSJ piece and others have pointed out, a lot of capital was repatriated to within US shores.

Here's something else progressives forget (or do know, but disingenuously demagogue):

Although some of the incidence of the corporate income tax lands on capital (shareholders), much of it is actually borne by consumers and employees. The ratio of the relative burdens, of course, varies over time and across industries, and with the mobility of capital and labor -- as well as the elasticity of supply/demand for products and services. (Countless papers and theses have been written on this topic over the last couple of decades.)

Another disingenuous argument is that the rate didn't need to be lowered because the effective rate for most companies was much less than 35%. That completely ignores all the shifting and maneuvering many firms had to do to get their effective rate lower, much of which had adverse effects on the efficiency of their operations.

At the very least, the rate needed to be lowered to something more or less typical of most OECD nations, which it was.

That lowers the amount of deadweight loss imposed on the economy by an inefficient, poorly designed tax.

. Originally Posted by CaptainMidnight

Great post. You're spot on.

Staff Edit - Remove SPAM - Biomed1

Wow this place doesn’t get many bots.

What she said.
I guess it takes a bot to know one

Wow this place doesn’t get many bots. Originally Posted by Jacuzzme

Great post. You're spot on. Originally Posted by Tiny

So you think Trumps tax cuts slowed inversion? Hmmmmmmm


Center for Economic and Policy Research ESMenu
> BLOG > THE GREAT FAILURE OF DONALD TRUMP’S BIG TAX CUT
• ARTICLE CoronavirusHealth and Social Programs Beat the Press

The Great Failure of Donald Trump’s Big Tax Cut
03/19/2020 12:00AM

DEAN BAKER

The fact that Donald Trump’s tax cut did not produce the investment and growth that was promised is widely known. There was a modest uptick in growth in 2018, from 2.4 percent the prior year to 2.9 percent in 2018, but this pace fell back to 2.3 percent last year. Virtually, all forecasts showed the growth rate falling still lower in 2020, even before the coronavirus began to impose large economic costs.

This is well below the 3.0 percent growth, for as far as the eye can see, promised by the Trump administration. In fact, the 2.5 percent average growth rate for the first three years of the Trump administration is only slightly better than the 2.3 percent average growth rate for the last three years of the Obama administration.

More important than the growth figures is the fact that there is zero evidence that it gave any substantial boost to investment. The investment share of GDP crept up slightly from 13.2 percent of GDP in 2017 to 13.5 percent in 2018, but it was back down to 13.4 percent last year. And, in the fourth quarter of 2019 it was back to 13.2 percent. The investment share never got as high as the 13.7 percent reached in 2014 under Obama. There certainly is not much of a boom story here.

Some tax cut proponents insist that the tax cut would have led to the promised boom had it not been for Donald Trump’s trade war. While there is little doubt that the trade war has had a negative effect on investment and growth, the impact would have to be far larger than any models project in order for the trade war to have been the only thing that stifled an investment boom. Also, from the standpoint of touting Donald Trump’s economic record, it is a bit hard to maintain that his tax cut would have led to a great investment boom, if not for damage caused by his ill-conceived trade war.

The story of the tax cut and the economy is simple. We gave a large tax cut, a bit less than $200 billion a year (around 0.9 percent of GDP), with the main beneficiaries being rich people. And, the rich spent a reasonable portion of their tax cut, leading to a boost in consumption and a boost to growth. This proves the old theory that if we give people more money, they will spend more. Of course, that is more true if we give the money to low and middle income people, but even high income people will spend more when they have more money.

The tax cut did lead to a large increase in the budget deficit, which is not necessarily a problem, except that we could have instead done things with this money like provide free child care, extend health care coverage, provide large subsidies to promote clean energy and conservation. In effect, we targeted increasing consumption by the rich instead of these alternative uses of resources.



The Tax Gaming Continues!

While the investment and growth failures of the tax cut are widely known, there is another failure of the tax cut which has gotten less attention. The main selling point of the corporate tax cut, which was at the center of the Trump plan, was that it would lead to an investment boom, leading to more rapid productivity growth and higher wages, but there was another more plausible story they also pushed.

The pre-Trump corporate tax rate was 35 percent, but few businesses were paying taxes at anything close to this rate. The overall average was close to 21 percent. The 35 percent statutory rate put us at the top of the OECD. However, our actually tax collections were slightly below the median.

The Trumpers argued that they would lower the rate, but would eliminate the loopholes, so that we would actually collect something close to the new 21 percent statutory rate. If this were true, it would actually be a change for the better.

The point is that whatever our tax take actually is, we want to minimize the resources involved in collecting this tax. When corporations employ elaborate tax avoidance or evasion strategies to get their tax rate down, they are employing considerable resources in this effort. This is a complete waste from an economic perspective. We have highly educated people working as tax lawyers and accountants instead of engaged in work that could have social benefits, such as improving medical technology or teaching.

These tax avoidance and evasion strategies also contribute to income inequality, since there is big money in designing them. If a clever accountant can find a way to save Apple or Google $400 million on their taxes, then these companies would come out ahead paying them $399,999,999. We shouldn’t design our economy so that tax gaming is one of the best ways to make a big fortune.

Anyhow, whether or not their promises on eliminating tax gaming were ever sincere, it is now clear that they were not accurate. We have lowered the tax rate, as they intended, but tax gaming continues to be as robust as ever.

We can see this clearly from the Congressional Budget Office’s (CBO) projections on corporate tax collections. In April of 2018, after the tax cut had been passed into law, CBO projected that we would collect $307 billion in corporate taxes this year. In January of this year, it projected that we would collect $234 billion in corporate taxes, a difference of more than 20 percent. This comes to less than 11 percent of projected profits.

The failure to limit tax gaming is also apparent in the continuing growth in the foreign share of corporate profits. The simplest and most common form of tax gaming is to have profits recorded in a tax haven like Ireland or the Cayman Islands. It is very difficult for governments to determine where profits were actually earned. For this reason, companies would rather have their profits booked in a country with a very low tax rate.

The latest data on profits from the Federal Reserve Board show that the tax cut did not discourage companies from booking their profits abroad. In fact, the foreign share of corporate profits rose from 21.3 percent in 2017, the last year before the tax cut, to 26.1 percent last year.

what i love is a leftist using language like "widely known" in support of his position

phrases like that are meant to fool some and gall others

So you think Trumps tax cuts slowed inversion? Hmmmmmmm Originally Posted by WTF

Why would you direct your post to me instead of Texas Contrarian? All I wrote was "Great post, you're spot on."

The Contrarian might have misused the word "inversion", but there's no doubt that a lower corporate marginal rate and the GILTI (global intangible low tax income) tax made it where it doesn't make as much sense for American corporations to recognize income from places like Ireland. They have to pay the GILTI tax if they do, unless they have a lot of depreciable capital investment in the foreign country. As a result software and drug companies and others who were moving intangible assets to low tax countries pay much higher U.S. taxes.

These changes were brought about by the 2017 Republican TCJA.

Texas Contrarian has already rebutted much of your Dean Baker article. Baker conveniently ignores the record low unemployment levels and huge jump in median household income that occurred in 2019.

You should re-read the Contrarian's post. And then read it a third time. Maybe a corporate tax rate of 0% would make the most sense.

Because it was easier to quote you than that long winded post!

Answer this....do you think using post pandemic numbers is a fair comparative?

I mean if you look at 2018/19 it sure didn't seem to get the results it claimed it would get.

I could read it 300 times but it would not change my mind.

Because it was easier to quote you than that long winded post!

Answer this....do you think using post pandemic numbers is a fair comparative?

I mean if you look at 2018/19 it sure didn't seem to get the results it claimed it would get. Originally Posted by WTF

That "long winded post" is pure gold!

I don't understand your question.

I could read it 300 times but it would not change my mind because I don't understand a word of it. Plus I am a diehard dim-retard partisan hack who mindlessly regurgitates DNC talking points and reflexively attacks all tax cuts under all economic circumstances using ignorant, inflammatory class warfare rhetoric. Originally Posted by WTF

FTFY.

wtf likes getting spanked when hes wrong. lol.

FTFY. Originally Posted by lustylad

Are you calling me a dim-retard?

Have you not read the rules in this forum?

You changing my quotes will not work out well for you.

I attack anything not paid for in a responsible way.

Your fiddling while Trump ran up 8 trillion in debt while cutting taxes as if that is a great economic record is laughable. And you call yourself an economist

That "long winded post" is pure gold!

I don't understand your question. Originally Posted by Tiny

Please post the numbers that lead you to believe that the tax cuts were a success.

Please post the numbers that lead you to believe that the tax cuts were a success. Originally Posted by WTF

https://eccie.net/showpost.php?p=106...&postcount=148

https://eccie.net/showpost.php?p=1062827930&postcount=1

https://eccie.net/showpost.php?p=1062827938&postcount=2