Trump & Congress—with the mainstream media in train—say the Tax Cut Act just passed amounts to $1.5 trillion. But that’s not the true total value of the business tax cuts. That’s what they claim is the deficit impact of the tax cuts. (But even that deficit impact is grossly underestimated, as will be shown shortly).
Here’s the true value of the business-investor tax cuts:
- $1.5 trillion cut due solely to reducing the corporate nominal tax rate from 35% to 21%.
- Another $.3 trillion for the new 20% tax deduction for non-corporate businesses (lowering their effective tax rate from 39.6% to 25%).
- $.3 trillion more for ending the business mandate for the Affordable Care Act
- Still another, at minimum, $.5 trillion for a combined accelerated business depreciation writeoffs (a form of tax cuts for writing off all equipment added by business in the year purchased instead of amortized over several years); plus repeal of the Alternative Minimum Tax for Corporations: and a roughly halving of the AMT for individuals. But that’s not all.
- The wealthiest 1% households, virtually all investor class, get their nominal individual income tax rate reduced from 39.6% to 37%. Moreover, the 39.6% did not kick in until an income level of $426,000 was reached. Now the threshold for the even lower 37% does not start until $600,000 income is reached. All that amounts to at least another $.5 trillion in tax cuts.
That’s a total of $3 trillion so far in tax cuts in the Trump Plan. But the further, really big tax cuts come for US Multinational Corporations. Their ‘take’ will be another $2 trillion in tax reduction over the next decade.
The Multinationals have hoarded between $2-$2.7 trillion in cash offshore in order to avoid paying taxes on their earnings. But that $2 trillion is a gross underestimation. First of all, it’s a figure for only the 500 largest US multinationals. What about the hundreds of thousands of other US corporations that also have foreign subsidiaries in which they park their cash to avoid taxes? And what about the unreported cash and assets they’re hoarding in offshore tax havens in the Cayman Islands, Bermuda, Vanuatu and elsewhere? That too is not part of the $2.-$2.7 trillion. Another reason to doubt the $2 trillion is accurate is that they already had $2 trillion stuffed away offshore back in 2011-12. According to the business periodical, Financial Times, the largest US corporations by January 2012 “are collectively sitting on an estimated $2,000bn of cash”. Does anyone believe they stopped diverting profits and cash offshore after 2011-12 for the past five years?
If one conservatively estimates there’s $4 trillion in cash stuffed offshore to avoid taxes (accumulating since 1997 when Bill Clinton conveniently allowed them to begin doing so), the new Trump tax act allows them to pay a tax of only 10% on average if they ‘repatriate’ (bring back) that cash. If they paid the prior 35% tax rate, it would cost them $1.4 trillion in 2018-19, the first year of the Trump tax. But estimates of this provision in the Trump bill show they plan to pay only $339 billion. So they will be saving approximately $1.061 trillion in the first year alone. Thereafter for the next nine years they pay only 8% to 15.5%, instead of the 35%. That amounts to at minimum another $1 trillion in tax savings for multinational US corporations under the Trump tax.
- In short, US multinational corporations will get a tax reduction of at least $2 trillion
The Trump tax cuts for businesses and investors thus total $5 trillion over the next decade!
So how do Trump, Congress, and the media get to only $1.5 trillion? Here’s how they do it:
They raise taxes on the middle class by $2 trillion in the Trump tax plan. That leaves the $5 trillion in business-investor cuts, minus the $2 trillion in middle class tax hikes, for a net $3 trillion in cuts. But they admit to only $1.5 trillion in net tax cuts. So where’s the difference of the other $1.5 trillion? That difference is assumed to be ‘made up’ (offset) by the US economy growing at a GDP rate of 3-3.5% (or more) for the next ten years—i.e. more than 3% for every year for ten more years without exception!
That 3-4% annual overestimated economic (GDP) growth for the US economy is based on ridiculous assumptions: that slowing long term trends in US productivity and labor force growth will someone immediately reverse and accelerate; that the US will now grow at double the annual rate it did the previous decade; and that there’ll be no recession for another decade when the historical record shows the typical growth period following recession is 7-9 years and the US economy is already in its 8th year since the last recession. (If there’s a recession, then the annual GDP growth for nine years will have to average close to 5% a year—a figure never before ever attained!).
It’s all Trump ‘smoke and mirrors’, lies and gross misrepresentations. But no matter, for its really all about accelerating the subsidization of corporations and capital incomes for the wealthiest 1% by means of fiscal policy now that the central bank’s 9 years of subsidization of capital incomes by monetary policy (i.e. near zero rates, QE, etc.) is coming to an end.