Those Tax Cuts: Take Two

Reactions to the Trump/GOP tax bill have mostly focused on the domestic consequences of that fiscal abomination: the steeply rising deficits and national debt; the “no show”  economic boost; the unconscionable further enrichment of the already obscenely rich; and Mitch McConnell’s stated intent to address that newly massive national debt by cutting programs that benefit the poor and elderly, notably Medicare and Social Security.

What hasn’t been widely reported is what Paul Krugman calls “foreign aid.”

Donald Trump often complains that the media don’t give him credit for his achievements. And I can think of at least one case where that’s true. As far I can tell, almost nobody is reporting that he has presided over a huge — but hidden — increase in foreign aid, the money America gives to foreigners. In fact, the hidden Trump program, currently running at around $40 billion a year, is probably the biggest giveaway to other nations since the Marshall Plan.

Unfortunately, the aid isn’t going either to poor countries or to America’s allies. Instead, it’s going to wealthy foreign investors.

The 2017 Tax Cut and Jobs Act–which, as Krugman reminds us, is the only major legislation Trump can claim thus far– cut taxes on corporations. Significantly. As credible economists predicted, it led to a drastic reduction in tax revenues. Krugman pegs the shortfall at $140 billion just the past year.

Supporters of the bill claimed that the benefits would be passed on to workers in the form of higher wages, and they made a big deal over a flurry of corporate bonus announcements in early 2018. But those bonuses weren’t actually very big, and they didn’t continue.

In fact, at this point it’s clear that the bonus surge, such as it was, was all about tax avoidance: By moving up payments they were going to make anyway, corporations got to deduct the expense at the old, higher tax rate. Now that this option has expired, bonuses have dropped back to their normal level, or even a bit lower.

Job creation? Investments in the business? Nah.

The benefits of the tax cut have gone almost entirely to corporate shareholders, in the form of increased dividends and capital gains from corporations using their windfall to buy back their own stocks.

And a big share of these gains to shareholders has gone to foreigners.

Over all, foreigners own about 35 percent of the equity in corporations subject to U.S. taxes. And as a result, foreign investors have received around 35 percent of the benefitsof the tax cut. As I said, that’s more than $40 billion a year.

Krugman compares Trump’s gift to foreign investors with the amounts we expend on foreign aid.

In 2017, the U.S. spent $51 billion on “international affairs,” but much of that was either the cost of operating embassies or military assistance. The Trump tax break for overseas investors is considerably bigger than the total amount we spend on foreign aid proper.

Now, the U.S. economy is almost inconceivably huge, producing more than $20 trillion worth of goods and services every year. We’re also a country that investors trust to honor its debts, so the tax cut, irresponsible as it is, isn’t causing any immediate fiscal stress.

So Trump’s giveaway to foreign investors isn’t going to make or break us, although it’s probably enough to ensure that the tax cut will be, over all, a net drain on economic growth: Even if the tax cut has some positive effect on the total income generated here (which is doubtful), this will probably be more than offset by the increased share of that income accruing to foreigners rather than U.S. citizens.

Still, even in America, $40 billion here, $40 billion there, and eventually you’re talking about real money. Furthermore, it does seem worth pointing out that even as Trump boasts about taking money away from foreigners, his actual policies are doing exactly the opposite.

I seriously doubt that Trump understands any of this. After all, it’s abundantly clear that he hasn’t the foggiest notion how tariffs work (or don’t). Or how government works, for that matter.

We shouldn’t be shocked to discover that the President is an economic ignoramus.

17 thoughts on “Those Tax Cuts: Take Two

  1. Is Big Pharma part of our foreign aid? Why have my basic prescriptions, inexpensive beta blocker and cholesterol meds, increased approximately 75% in the past year? Family and friends have been aghast when they pick up refills of basic prescriptions. Or; are we paying for Big Pharma’s donations to campaigning politicians of both parties?

    “The benefits of the tax cut have gone almost entirely to corporate shareholders, in the form of increased dividends and capital gains from corporations using their windfall to buy back their own stocks.”

    The above quote and all of Trump and McConnell’s on-rushing train to destruction of middle-America is public knowledge and yet…and yet…ain’t nobody doin’ nuthin’ to stop them! That light at the end of the only tunnel available to us is their on-rushing train to destruction of American life as we have known it in the guise of Trump’s “tax reform” and his personal “tariff war”.

    The entire male Republican administration is comprised of eunuchs with their female harem members submitting to their subjecting this country to Trump and McConnell’s scorched earth tactics to maintain their ruling position over all. And…ain’t nobody doin’ nuthin’ to stop them.

  2. Once again, Trump projects his own shortcomings as the sins of others. He sold himself as the savior of blue collar workers whose jobs had been shipped overseas while Trump continues to manufacture overseas. He said we had to curtail immigration to save jobs here for Americans while the Trump properties continue – long after exposure – to hire undocumented immigrants and even helps them obtain false papers. He claimed the tax cut would pay for itself, but Trump has a long history of indebtedness beyond his abilities for repayment to the point of multiple bankruptcies. How many times must we learn the lesson that the problems he says he’s attacking are the ones he’s creating.

  3. The next President hopefully, Sanders or Warren will have a lot to do. If we can retire McConnell, keep the House and take the Senate, we can begin to reverse the tax cuts, eliminate loopholes, and crack down on money laundering. Also, reverse all the sabotage going on at the EPA.

    This would be a nice start. At the same time start the ball rolling on Single Payer or Medicare for All.

  4. I like ML’s plan, especially “begin to reverse the tax cuts.”

    It will take a huge “loophole” bill first because when Trump loses the rich will all be hiding their cash, along with the corporations in overseas havens. Except of course if Biden wins then it’s business as usual.

    Trump isn’t the only one “out of touch”…most in Congress haven’t a clue because of the rules in NY-WS and DC are different than here. It’s what “they can get for themselves” — the Greed principle rules the land.

  5. At the same time corporations were giving their executives huge bonuses for the increase in share value, many of the top corporate earners, once again, paid zero income tax. On the personal tax side, the bill was meant to punish blue states, while at the same time enriching the ultra-rich.

    This just might be the most ill-conceived tax reform in the history of the world, but it hit all the right notes for the Republicans, who might also be the most ill-conceived party in the history of the world They’ve certainly stolen the thunder of the Know Nothings.

  6. Trump is not that stupid. He does have a consistent policy. That is to stay in power. If he can keep white folks in fear of being replaced, keep the richie rich happy and and facilitate burgeoning corruption he can become dictator for life or at least gain a second term and stay out of prison.

  7. Every country in the world today has a mixed economy of capitalism and socialism. People like Trumpence want the socialism part to go away in order to open up the opportunity to make more money now regardless of the impact on any others ever.

    On the other hand people who focus on the socialism part as the solution to some big social problems we all suffer from don’t want Capitalism to go away but continue to work for everyone in the markets it is appropriate for and under the conditions necessary for it to work: regulation to protect all stakeholders, consumers, employees, the environment, government, suppliers, and investors; progressive income taxes to redistribute back all of the wealth it distributes away from the creators, employees, and towards investors; and protection of earth’s resources to serve future generations.

    If Trumpence “rallies” were attended by those who he gives to rather than those who he steals from them they would resemble Davos instead of a Saturday night bar fight. It might be asked how does he get those whose labor creates all wealth that he steals from to cheer him on? He lies to them. He lies often and lavishly and without a spec of inhibition or hesitation. Why do they prefer to be lied to than told the truth? They have been trained to avoid the critical thinking necessary to distinguish the two polar opposites by their entertainment media heavily salted by advertising/fake news/propaganda/brainwashing.

    It’s not a clever setup at all but a every effective one. If we ever got to see Trump’s taxes the story that they would tell is of a very poor business man who was born wealthy but mismanaged most of the wealth away only to be saved by American taxpayers and screen based entertainment addicts who fall for his advertising/fake news/propaganda/brainwashing.

  8. Yes, we here all know what the right thing to do is. But we’re rational and, most importantly, not Republicans. Republicans have been pushing this middle class destruction since the day after Lincoln was shot. Now, they have the ultimate in stupidity, corruption and wickedness in the White House and the Senate. Trump is allowing the enablement of Republican dreams.

    Clearly, fiscal responsibility does not, if it ever did, exist with Republicans. ML suggests we overturn the Senate, add a stronger majority to the House and get rid of the cancer in the White House. The Republican party MUST be relegated to the ash heap of history, or it will be the entire United States that ends up in the bonfire.

  9. as i see it,over the last 40 years,wall streets climb is due to our productivity and from our sweat,where money should have went into the working class pockets,it went else where. the fact main street dwindles,and thats a real so called trickle down effect.only its white washed by think tanks and republicans groomed to take over prior to being elected..though we are now focusing on the names,and party finally, we have allowed the effect of this to go unchallenged for this same 40 years. obvioisly,we overlooked while being pacified by whatever. Thom Hartmann has a piece on ayn rand,and her serial killer view,makes ya wonder what the republicans motive is,and just how devious they are when cutting off the people,and how calous they are after they do it. while giving it all to the billion,aires..maybe a piece as seen way out there,but when you look overall, it has some realism to the republican agenda today.

  10. It has become abundantly clear to me that the evil Republican leadership in the Senate (and those in the House who are not in leadership positions) promised to reward their corporate donors/owners many years ago and finally kept that promise with the tax gift that they pushed through in 2017.

    They knew all along that their corporate donors intended to destroy the middle class by pushing us down into the poor class, leaving us with no power at all to demand decent working conditions or a livable wage. Their plan was to revert this country to a system of slaves and slave owners. As long as they continue to feed their proles with lies via the far right media that has become all-powerful in this country, they will be able to control the slave class’ thoughts and actions. They have found out how easy it is to lie to their followers/voters and maintain their positions of power that constantly rewards them with even more money.

    The corporate executives finally achieved their goal of having absolute power in this country. They were elevated to the title of Slave Owners after paying the sums demanded by the majority of the members in Congress.

  11. Blowing my own horn: I posted from the Brooking’s Institute on my FB timeline, and commented on it extensively this morning. All are welcome to my thoughts there.

  12. And, Mitch McConnell. The national debt is not because of Social Security recipients and other poor people, and will not be paid by cuts thereto. As the Professor points out, it exists because of the transfer of wealth to the already rich, and to solve the debt crisis, the government must take back the money it has given them. And, if it would do that, a little foreign aid would still be needed — to help the Cayman Islanders, whose banks would then be empty.

  13. I read an article this morning speculating that 45 and his cronies are shorting the market before his tweets announcing new tariffs that cause market crashes. Let’s remember he didn’t divest from his business interests

  14. I have written on this tax bill that rewarded Boeing, among others, for so long I am going to pass on general comment in re the further travesty of its rewards to foreigners, but today instead write about a specific taxpayer, a so-called “defense” (aka offense) contractor, to wit: Boeing (who Trump once said ” in a speech before their executives – God bless Boeing) paid ZERO taxes last year on some 11 billion dollars in profit, but since it and its executives and shareholders were foundering before that and on the edge of Chapters 11 and 7, respectively, (not), Trump and Ryan heaped billions in tax cuts on their respective bottom lines in a massive giveaway of our tax money aggregating over a trillion and a half dollars that, when added to other such “defense” industries’ bottom lines and corporate welfare for their non-defense corporate brethren and rich people in general, makes the 40 billion given to alien investors look like chicken feed, and guess what? Our grandchildren will join us in paying for this heist (added to an already long term deficit of some 21 trillion dollars, both at interest.) Thanks, Don.

    It is unfortunate that Trump, Ryan and every senator and representative who voted for this December, 2017, theft cannot be indicted and jailed, but their predecessors in office have provided immunity for such acts of public larceny. The good news is that this as yet unaddressed felony can be reversed and that Warren, among others and if elected, has pledged to repeal this act. I can hope that such a repealer will include a tax increase aimed at those who benefited from this horrid legislation in the first place (and which includes, incidentally and personally, Trump, Ryan and McConnell themselves), and that such recoveries are returned to the public larder – with interest.

    Parenthetically, this is the same Boeing (who gives us 737s that crash and kill people and jets that Saudis use to bomb Yemen), a sometimes taxpayer who Trump, Ryan and Mitch prefer to reward, and who now tell us that we will have to reduce social services to pay for their giveaways to the already filthy rich in yet another officially unaddressed theft to pay for the first one! What brass! GRRR!

  15. Gail – I didn’t read the article you referred to about using tariffs or (my addition) the threat of them, or lately, the withdrawal of their effective dates, all designed to make Trump a bundle as his kids and/or others who could provide plausible denial buy and sell short. Such a plot did occur to me earlier, and something else occurred to me while in conspiracy mode and knowing of Trump’s terminal greed, to wit: What’s to keep others who were tipped off to his tariff games to sell short and provide a commission to a Zurich number he controls through layers of trustees? Far out? Perhaps, but we’re dealing with a sick Midas, and I put nothing past him.

  16. Why don’t the people realise what you just explained in your article. Before they realise it will be to late !

  17. Social security is not part of the budget. We pay a separate tax for that benefit. If senators and representatives don’t realize that they should all go to jail for stealing from a pension fund.

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