The Trump Tax Cut: Even Worse Than You’ve Heard

[Jim in CT]

Originally Posted by Pete F.

So if I gave you a dollar today and stole it plus interest from you tomorrow, you would be alright with that? Trump's math doesn't work and he doesn't care as long as he can con his base into believing it's a good thing. Simple elegant solutions to complex problems are typically incorrect but espoused by populists like Trump and Sanders.
Here's the rest of the body of the article you think is a hit piece, Unfortunately I can't copy the graphs

"Let me explain each point in turn.

First, when people say that U.S. corporations have “brought money home” they’re referring to dividends overseas subsidiaries have paid to their parent corporations. These did indeed surge briefly in 2018, as the tax law made it advantageous to transfer some assets from the books of those subsidiaries to the home companies; these transactions also showed up as a reduction in the measured stake of the parents in the subsidiaries, i.e., as negative direct investment ( figure 1)
But these transactions are simply rearrangements of companies’ books for tax purposes; they don’t necessarily correspond to anything real. Suppose that Multinational Megacorp USA decides to have its subsidiary, Multinational Mega Ireland, transfer some assets to the home company. This will produce the kind of simultaneous and opposite movement in dividends and direct investment you see in Figure 1. But the company’s overall balance sheet – which always included the assets of MM Ireland – hasn’t changed at all. No real resources have been transferred; MM USA has neither gained nor lost the ability to invest here.
If you want to know whether investable funds are really being transferred to the U.S., you need to look at the overall balance on financial account – or, what should be the same (and is more accurately measured), the inverse of the balance on current account. Figure 2 shows that balance as a share of GDP – and as you can see, basically nothing has happened.


Figure 2CreditBureau of Economic Analysis
So the tax cut induced some accounting maneuvers, but did nothing to promote capital flows to America.

The tax cut did, however, have one important international effect: We’re now paying more money to foreigners.

Bear in mind that the one clear, overwhelming result of the tax cut is a big break for corporations: Federal tax receipts on corporate income have plunged (Figure 3).
The key point to realize is that in today’s globalized corporate system, a lot of any country’s corporate sector, our own very much included, is actually owned by foreigners, either directly because corporations here are foreign subsidiaries, or indirectly because foreigners own American stocks. Indeed, roughly a third of U.S. corporate profits basically flow to foreign nationals – which means that a third of the tax cut flowed abroad, rather than staying at home. This probably outweighs any positive effect on GDP growth. So the tax cut probably made America poorer, not richer.

And it certainly made most Americans poorer. While 2/3 of the corporate tax cut may have gone to U.S. residents, 84 percent of stocks are held by the wealthiest 10 percent of the population. Everyone else will see hardly any benefit.

Meanwhile, since the tax cut isn’t paying for itself, it will eventually have to be paid for some other way – either by raising other taxes, or by cutting spending on programs people value. The cost of these hikes or cuts will be much less concentrated on the top 10 percent than the benefit of the original tax cut. So it’s a near-certainty that the vast majority of Americans will be worse off thanks to Trump’s only major legislative success.

As I said, even the mainly negative reporting doesn’t convey how bad a deal this whole thing is turning out to be.

so now you’re saying that policies which provide economic benefit today but which must be paid for by borrowing with interest, are bad. there is logic to that, i mean that. i bet you never expressed that concern from 2009-2016.

again, can we have a consistent set of standards,applied equally to all presidents? is that too much to ask?

both sides are guilty of this hypocrisy. it gets us nowhere, and it’s intellectually lazy.

your article says that overseas money brought home, doesn’t necessarily correspond to anything real.

Bullsh*t.

Apple brought home $250 billion, and paid 38 billion in federal income tax on that. thirty eight billion dollars isn’t real?

the article is a political hit piece. unless you feel that 38 billion is nothing.
Posted from my iPhone/Mobile device

[Pete F.]

Originally Posted by Jim in CT

so now you’re saying that policies which provide economic benefit today but which must be paid for by borrowing with interest, are bad. there is logic to that, i mean that. i bet you never expressed that concern from 2009-2016.

again, can we have a consistent set of standards,applied equally to all presidents? is that too much to ask?

both sides are guilty of this hypocrisy. it gets us nowhere, and it’s intellectually lazy.

your article says that overseas money brought home, doesn’t necessarily correspond to anything real.

Bullsh*t.

Apple brought home $250 billion, and paid 38 billion in federal income tax on that. thirty eight billion dollars isn’t real?

the article is a political hit piece. unless you feel that 38 billion is nothing.
Posted from my iPhone/Mobile device

Corporate income taxes paid went down by HALF, how much any individual corporation paid is immaterial in funding the government.

[Jim in CT]

Originally Posted by Pete F.

Corporate income taxes paid went down by HALF, how much any individual corporation paid is immaterial in funding the government.

Well the corporate tax rate didn't get cut in half, so something else is at play there which may or may not have anything to do with the tax cut.

I have news for you...when corporations have more after tax income, that doesn't only benefit the wealthy. I have spent my career so far in a cubicle, I am a worker bee not an executive. And I have worked for some huge companies (Aetna, Travelers, The Hartford). And I know for sure, that the more money the company has at the end of the year, the better my raise and bonus will be. They share profits with the workers, they have to, or the good workers will all leave.

Corporate America isn't the plantation you seem to think it is.

[Pete F.]

Originally Posted by Jim in CT

Well the corporate tax rate didn't get cut in half, so something else is at play there which may or may not have anything to do with the tax cut.

I have news for you...when corporations have more after tax income, that doesn't only benefit the wealthy. I have spent my career so far in a cubicle, I am a worker bee not an executive. And I have worked for some huge companies (Aetna, Travelers, The Hartford). And I know for sure, that the more money the company has at the end of the year, the better my raise and bonus will be. They share profits with the workers, they have to, or the good workers will all leave.

Corporate America isn't the plantation you seem to think it is.

There is a difference between tax rate and effective tax rate.
Wharton did a study and the effective rate was 20% and now is expected to be 9%
That's more than half.
"You never can answer the question" Is how I believe you typically put it with some identity politics thrown in.
Your taxes withheld or owed went down?
Have you done your taxes yet or are you surmising?

[Jim in CT]

Originally Posted by Pete F.

There is a difference between tax rate and effective tax rate.
Wharton did a study and the effective rate was 20% and now is expected to be 9%
That's more than half.
"You never can answer the question" Is how I believe you typically put it with some identity politics thrown in.
Your taxes withheld or owed went down?
Have you done your taxes yet or are you surmising?

"There is a difference between tax rate and effective tax rate."

agreed.

"Wharton did a study and the effective rate was 20% and now is expected to be 9%
That's more than half."

Yes it is. That Wharton said it, doesn't mean that's what's going to happen. I'm not an accountant, but I'm not sure how the effective tax rate would go down by larger percentage than the flat rate, not across the board.

If a company's net rate was 20% (when the gross rate was 35%), that means they have quite a bit of income not subject to the federal income tax (for example, maybe they have money invested in T-bills, on which interest earned is tax free). If that stays the same going forward, that income is still tax free, so would not decrease the effective tax rate. Not sure why, on average, companies would see a 55% decrease in effective tax rate, when the gross rate decreased by 40%, but I'm no CPA.

"Your taxes withheld or owed went down?
Have you done your taxes yet or are you surmising"

I thought I answered that is detail.

My taxes withheld went down, and my CPA says that my end-of-year taxes owed, will go down by the same amount. So the $200 a month bump I saw, will be ours to keep.

We qualify for that tax decrease, because of a decrease in tax rates as well as an increase in child tax credits.

Does that not answer your question? I think it answers it precisely as you asked.

I have not done my taxes yet (who has their W-2 already?). I asked a CPA what the end-of-year impact would be, of my decreased withholdings. I'll tell you for certain in March.

I am not assuming anything about taxes withheld, those went down by $200 a month. The payroll department wouldn't do that, if it meant I'd owe that much more at the end of the year. I didn't change my W-4.

[Pete F.]

Originally Posted by Jim in CT

"There is a difference between tax rate and effective tax rate."

agreed.

"Wharton did a study and the effective rate was 20% and now is expected to be 9%
That's more than half."

Yes it is. That Wharton said it, doesn't mean that's what's going to happen. I'm not an accountant, but I'm not sure how the effective tax rate would go down by larger percentage than the flat rate, not across the board.

If a company's net rate was 20% (when the gross rate was 35%), that means they have quite a bit of income not subject to the federal income tax (for example, maybe they have money invested in T-bills, on which interest earned is tax free). If that stays the same going forward, that income is still tax free, so would not decrease the effective tax rate. Not sure why, on average, companies would see a 55% decrease in effective tax rate, when the gross rate decreased by 40%, but I'm no CPA.

"Your taxes withheld or owed went down?
Have you done your taxes yet or are you surmising"

I thought I answered that is detail.

My taxes withheld went down, and my CPA says that my end-of-year taxes owed, will go down by the same amount. So the $200 a month bump I saw, will be ours to keep.

We qualify for that tax decrease, because of a decrease in tax rates as well as an increase in child tax credits.

Does that not answer your question? I think it answers it precisely as you asked.

I have not done my taxes yet (who has their W-2 already?). I asked a CPA what the end-of-year impact would be, of my decreased withholdings. I'll tell you for certain in March.

I am not assuming anything about taxes withheld, those went down by $200 a month. The payroll department wouldn't do that, if it meant I'd owe that much more at the end of the year. I didn't change my W-4.

I doubt that Wharton figured out what all corporate taxes were, they did a model based on typical numbers and came up with a projection.
Not perfect but they came up with more than 50% reduction which matches the decrease in taxes paid to date.

I was probably asking when you were answering
So you're surmising that your withholding is correct based on some free advice from a CPA and you'll find out in March.

[Jim in CT]

Originally Posted by Pete F.

I doubt that Wharton figured out what all corporate taxes were, they did a model based on typical numbers and came up with a projection.
Not perfect but they came up with more than 50% reduction which matches the decrease in taxes paid to date.

I was probably asking when you were answering
So you're surmising that your withholding is correct based on some free advice from a CPA and you'll find out in March.

I'm surmising based on (1) my payroll department told me this would be the case, and because that's how payroll departments handle changes in tax rates, and (2) MY CPA, not some random CPA, did an estimate of my 2018 taxes, using the new rates and what I could tell him about my income for this year, and my refund was actually $200 larger than the refund I got last year, on top of my withholding being $200 a month less. He actually put the numbers into a tax spreadsheet, he didn't just guess out of thin air.

I won't know for sure, I can't know for sure, until I do my taxes. I am certain that my refund won't be $2400 less than last year, due to my withholding $2400 less. That's not how it works.