Did Trump manage to spin a huge tax bite as a tax cut?

by philg

Congress passed some changes to the U.S. tax code back in December 2017. When Donald Trump signed these into law he said that he was cutting taxes on corporations and the media generally reported it as a “cut.”

Now that everyone is back from vacation, we’re seeing headlines such as “Microsoft 2Q18: Trump tax hit turns strong quarter into $6.3B loss”.

How is it possible that companies are paying more when their taxes have been “cut”?

From the article cited above:

The cause of this was a $13.8 billion tax bill courtesy of the Tax Cuts and Jobs Act (TCJA), signed into law by President Trump late last year. Absent that change, net income would have been $7.5 billion, up 20 percent year-on-year, with earnings per share similarly up 20 percent to $0.96.

The TCJA imposed one-time tax rates of 15.5 percent on foreign-held cash and cash equivalents and 8 percent on non-cash, as if that foreign money had been repatriated to the US and hence subject to US corporate income tax. Many firms with large foreign-held cash piles are going to be taking big tax hits this quarter as a result; Citibank claimed a $22 billion charge, and Apple is expected to take a hit as big as $38 billion.

I can’t remember this being reported. Companies that weren’t smart enough to flee to Ireland years ago are now being hit with tax on 10 or 20 years of accumulated off-shore booty. This is a huge one-time boost to the U.S. government. Under the old system they could have left the money offshore indefinitely and never paid any tax. So it is tough to see how this can fairly be characterized as a “cut” even if tax rates for the next 10 or 20 years might be lower.

My Facebook friends put out a constant drumbeat of “Trump is stupid” and “Trump is an idiot,” but successfully spinning this huge tax bite as a “cut” looks more like genius, no?

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14 thoughts on “Did Trump manage to spin a huge tax bite as a tax cut?”

  1. The epithet I hear most often is “Useful Idiot”, implying that, for all his admitted cunning as a con artist, there are still more artful dodgers pulling his strings.

  2. Jon: A “useful idiot” can be someone with billions of dollars in personal assets and his own Boeing 757? What leverage would anyone else have over such a person?

  4. So the motivations of a multi-billionaire are being successfully and accurately inferred by people who earn $100,000 per year and struggle to pay their mortgages?

  7. Scott: the article you cite says that the government is running out of money for structural reasons. It explains about “a budget shortfall that grew to $665.7 billion last fiscal year because of higher spending on Medicare, Social Security and other programs for an aging population.”

    I think that this could have been foreseen at least as far back as 2010:

    http://philip.greenspun.com/blog/2010/03/11/u-s-debt-including-pension-obligations-is-500-percent-of-gdp/

    With that much of a debt overhang, absent spectacular Chinese-style GDP growth, won’t the U.S. government keep having to borrow no matter how successful the tax system is at bringing in money? Using the NYT numbers, even if the government could collect 100 percent of GDP it would still take 5 years to balance the books! (and then they could get out of balance once again if Americans began to live yet longer and/or if health care costs continued to rise)

  8. Someone has suggested to me that these bonus payments we keep hearing about being distributed to workers needed to be timed before Jan 1 for some reason. Was it to avoid something kicking in?

  9. The corporate tax rate for ordinary domestic profits was much higher in 2017 than in 2018. So it made sense to push every expense from 2018 back into 2017.

  10. Expenses pre 2018 can reduce the tax burden more than later expenses. For C corporations, a $1000 bonus reduces the tax by $350 in 2017, but only $210 in 2018.

  11. I pointed this out when you posted about Apple’s benevolence in bringing offshore funds back–because they were going to get taxed anyway!

  12. Senorpablo: I remember. I didn’t understand your comment at the time, not because I doubted Tim Cook’s ability to lie (or for Apple fanboys to believe a lie), but because it is such a radical change from all previous U.S. tax policy. That goes back to the genius of Trump!

  13. No, Phil, it says that about last year. The government was certainly out of money then as well, just increasing that deficit.

    From the article:
    “The gap is expected to widen further due to tax cuts enacted this year that are projected to reduce revenue by almost $1.5 trillion over the next decade.”

    Issuing more debt to pay for a widening gap,

    “The U.S. posted its largest budget deficit since 2013 in the fiscal year that ended in September. While President Donald Trump’s administration says the tax bill will stimulate enough economic growth to cover lost revenue, Congress’s tax scorekeeper estimates the changes will raise deficits by more than $1 trillion over the next decade.”

  14. Scott: The U.S. debt grew by nearly $10 trillion during 2008-2017 (to a total of $20 trillion). Presumably that was due to structural problems that aren’t going away. So we can expect at least another $10 trillion in debt for the next 10 years, right? And, if the forecasters are 100 percent accurate (if they can see the future, why don’t they quit their job in Congress and run a hedge fund?), it will be $11.5 trillion instead of $10 trillion in new borrowing? We’ll hit $31.5 trillion in debt rather than $30 trillion? I can see that hitting $31.5 trillion in debt might be a problem. Maybe there isn’t a sucker born every minute who will lend the U.S. government more money denominated in dollars. But the “baseline plan” of running debt up to $30 trillion doesn’t seem like it would work a whole lot better.

    In short: If we have to pay our bills, debt of either $30 trillion or $31.5 trillion seems like it will be unsustainable. If we don’t have to pay our bills, though, I don’t see that there is a huge difference.

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