Corporate income tax collections are near a 75-year low, as a share of the economy, after a new law reduced rates and allowed companies to deduct investments immediately.
In the trough of the Great Recession in 2009, as companies laid off hundreds of thousands of workers each month, the amount of corporate income taxes collected by the federal government plunged by almost a third. It was the largest quarterly drop since the Commerce Department began compiling the data in the 1940s. No other period came close.
Until this year.
In the first half of 2018, corporate tax collections dropped to historically low levels as a share of the economy, according to data from the Bureau of Economic Analysis. That is pushing up the federal budget deficit much faster than economists had predicted.
.. The reason is President Trump’s tax cuts. The new law introduced a standard corporate rate of 21 percent, down from a high of 35 percent, and allowed companies to immediately deduct many new investments.
.. The growing deficit has forced the Trump administration to adjust its claim that the tax cuts would pay for themselves by generating increased revenue from faster economic growth. The White House’s Office of Management and Budget said this month that it had revised its forecasts from earlier this year to account for nearly $1 trillion of additional debt over the next decade — almost $100 billion a year in additional deficits, on average.
.. That is hindering the government’s ability to stabilize its balance sheet before the next recession hits or maintain spending programs that could help blunt the pain of future downturns. Economists equate that process to refilling the city water tower during periods of heavy rain, in order to prepare for the next drought. It’s not happening this time around.
.. Over time, that repatriation should generate tax revenue.
But, as Ms. Clausing noted, companies can spread the bill over the next eight years, which is why we’re not seeing that money lifting corporate tax payments in the near term.
.. provisions of the new tax law, which allow companies to write off new investments immediately, could prove more popular than some forecasters anticipated.
.. Multinationals could also be shifting money — on paper, basically — into the United States solely to take advantage of the expensing provision and reduce their American tax bills.
It’s also possible, but far too soon to tell, that changes to multinational taxation, including what is considered a de facto minimum tax on certain income earned overseas, will not raise as much revenue as expected.
Trickle Down? Not Now, and Not for a While at Best (Wonkish)
It’s nonsense, of course. Think of the motivation: lots of companies are raising wages at least a bit in the face of tight labor markets; pretending that it’s because of the tax cut is a cheap way to curry favor with an administration that has no hesitation about using regulatory and antitrust decisions to reward friends and punish enemies. It’s basically Carrier all over: make a Trump-friendly splash by declaring that he persuaded you to save jobs, then lay off lots of workers after the cameras have moved on.
.. even if you believe economic analyses that suggest corporate tax cuts are good for wages, it shouldn’t happen right away. Any trickle-down should come about because the tax cuts lead to higher investment, which leads over time to a larger capital stock – and it’s the increase in the capital stock, which may take many years, that leads to the wage rise.
Tax Bill Hysteria
“Our current corporate tax system is outdated, unfair and inefficient. It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America’s small businesses to spend countless hours and dollars filing their taxes. It’s not right and it needs to change.”
That was Barack Obama in 2012, with a proposal to cut rates to 28 percent. Other prominent Democrats who have previously called for cutting corporate taxes include Tim Geithner, Ms. Pelosi, and Chuck Schumer.
.. Many developed countries, including Germany, Sweden and Britain, have all slashed their corporate rates in recent years. Lo, the sky did not fall.
Tax-Cut Santa Is Coming to Town
In his place we have Republican Tax-Cut Santa, who has different priorities.
You see, the new guy doesn’t care whether you’re naughty or nice. In fact, he’ll actually reward you if you’re naughty in the right ways.
But mainly he cares whether you’re rich, especially if your wealth comes from property (preferably inherited property), not hard work.
.. So this is basically a tax cut for shareholders.
And who are these shareholders? About a third of the total benefits will go to foreigners.
.. the top 1 percent of domestic households owns 40 percent of stocks, the bottom 80 percent just 7 percent.
.. Next year, most people will probably see a small tax cut, although for the middle class it will be a smaller cut than the one they got from Barack Obama in 2009 — a tax cut almost nobody noticed.
.. the second most important piece of this tax bill, after the corporate tax giveaway, is a drastic tax cut for business owners, who will end up paying much less in taxes than people with the same income who work as someone else’s employee.
.. Over the months ahead, as thousands of top-dollar accountants and lawyers get to work, expect to see many more routes to tax avoidance emerge — but only for the rich and well connected.
.. But the doctors can get around the rule by buying the building they work in, then charging themselves an exorbitant rent. Voilà! They get to pay much lower taxes — because real estate investment trusts, strange to say, do get the big tax break.