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?