Trump’s corporate tax cuts misses workers, blows-out deficit

By Leith van Onselen

While the Turnbull Government and the Business Council of Australia (BCA) continue to insist that reducing the company tax rate is essential to fuel investment, jobs and wages growth, the impact from the recent US corporate tax cuts continues to disappoint, fuelling little more than a boom in share buybacks. From Bloomberg:

American companies are investing in their own stocks at a record pace…

After buybacks among S&P 500 Index members hit a record in the first quarter and more than a third of the index raised dividend payments, corporations have returned $992 billion to shareholders in the past 12 months. At the current rate, 2018 will mark the first year that corporate America showers investors with more than $1 trillion.

“This record surge is proof positive that the GOP tax law was a scam for the rich,” Schumer said in a statement. “As Democrats and many experts predicted, corporate executives and wealthy shareholders are reaping the benefits of the tax law at a never-before-seen rate, while workers and middle-class families are left largely in the dust.”

These bonanzas for shareholders have been blamed for contributing to a widening wealth gap among Americans as more high-income families invest in stocks than low-income households…

Meanwhile, as revealed earlier this month, the US Government has borrowed $488 billion – a record high for the first quarter – as the Budget deficit balloons, in part to fund the corporate tax cuts:

The U.S.’s need to issue more Treasuries is expected to grow as the fiscal picture deteriorates. The budget deficit widened to $600 billion halfway through the fiscal year, as spending increased at three times the pace of revenue growth in the October-to-March period, according to Treasury figures released earlier this month.

Tax and spending measures approved by Congress and President Donald Trump are expected to push the budget gap to $804 billion in the current fiscal year, from $665 billion in fiscal 2017, and then surpass $1 trillion by 2020, according to the Congressional Budget Office.

None of this should be a surprise. In January, Moody’s credit rating agency said that it did “not expect [US] corporate tax cuts to lead to a meaningful boost in business investment”.

It’s trickle-down nonsense to believe that cutting company taxes will benefit ordinary workers. Instead, they’ll be left paying off an even bigger Budget deficit.

Just look at the US and ask yourself whether you believe Australia should follow suit?

Sadly, it appears that Australia’s Senate cross-bench is reportedly still considering whether to pass the Turnbull Government’s company tax cut package. From The Canberra Times:

A new tax on digital giants including Google, Facebook and Uber has won support from crucial Senate crossbenchers, clearing the way for a possible vote within weeks on two Turnbull government flagship economic policies…

Centre Alliance senator Stirling Griff, who along with colleague Rex Patrick holds the final two Senate votes needed to secure the company tax reduction, said the party was “100 per cent behind a digital economy tax proposal”.

“If the digital economy tax makes the government coffers swell more than they do now, that is very much a positive step,” Senator Griff said.

“As long as there are no cuts to core community services, we’d be receptive to a degree of tax relief for everybody. A lot could happen in six weeks; maybe the company and income taxes can be done by July”…

One Nation, which has a history of demanding more tax from multinationals, is also sympathetic to the taxation of digital giants…

This is a ridiculous development if true. Taxing digital giants makes sense in its own right and should not be tied to company tax cuts. One has nothing to do with the other, and cutting company taxes will remain poor policy irrespective.

Don’t roll for a tummy tickle, senators.

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Unconventional Economist
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  1. Could MB list the at risk of flipping senators and their contact details so if the MB readership felt inclined to voice our opinions we could? Navigating APS websites ruins my day.

  2. The Australian context includes franking credits. Cutting corporate tax rate merely benefits foreign owners of those corporates. Small business probably is not in franking system so special treatment for them is fair but for the larger corporates why are we not increasing corporate tax since domestic holders get it back (unless the new ALP measure on rebate payments from ATO come in).

  3. And yes Trump policy is not good policy. He is piling on debt to get a boom now that he hopes will carry him through 2020 election. And someone else can pay for on the never never. Typical short termism. Making America gutted again.

    • Ronin8317MEMBER

      If November becomes a disaster and the Democrats gets both House and Senate, he won’t make it to the next election.

      • Polling says 65% of those who vote for the Democrats want UBI and only 28% of the Republicans want it. They better put it in when they have control of the lower house and upper house.

      • sydboy007MEMBER

        The continued stretching from democrats for regressive leftist policies is making then led and he’s palatable for the centre.

        Throw in candidates continually calling for gun bans and out right lies around funds, and I question if the usual turn against the government at the midterms will occur.

        The best policy for the democrats would be to say nothing, tell their main stream media sycophants to shut up too and not report every trump tweet as if it’s the last before the end of civilization.

    • You are describing virtually every administration and every politician — they’re experts at spending money but have no interest in saving it. When the chickens come home to roost they won’t be around to take the heat.

      Pollies have zero skin in the game.

  4. > Just look at the US and ask yourself whether you believe Australia should follow suit?

    It’s early days yet. There are stories that a fair few nominally EU companies are considering relocating their HQ to the US.

    We’ll see if that happens. If it does, it’s likely the US tax take would be larger.

    • You are right myne. Trump’s, as distinct from the Aussie Libs, deep corporate tax cuts are part of a continually unfolding package and also require some time to take effect. Share buy-backs are just the first economic response. Theyre will be a time when that stops…so then we need to think about what business will next do with the tax savings and what those who have sold their shares will do with there newly received money.

      I do not fully support the tax cuts overall, or as a one off item, but they can be part of a useful package. The money would be far better spent going towards research and development grants and r&d tax cuts.

      Neoclassically educated economists are frequently unable to understand business and any rational thinking that is outside their faulty paradigms and simplistically expect only an immediate sugar hit from significant economic changes. Hence the Unconventional Economist response.

  5. The next phase of company response is probably more asset price escalation. To support R&D and increased production you need to anticipate increased demand. Where would that come from?

  6. “Trump’s corporate tax cuts misses workers, blows-out deficit.”

    The age of growth is over. The plebs are drowning in debt. Companies are being run for profit.

    Why on earth would any CEO invest in what is clearly a bleak medium-term future?

    Reset is next.

  7. I’m in the US, my last performance review was very good, well above the norm. However my pay rise was 3%. So much for the tax cuts. It’s trickle up economics once again.