Big companies drove Donald Trump’s tax cut law but refused to commit to any specific wage hikes for workers, despite repeated White House promises it would help employees, an investigation shows.
The 2017 Tax and Jobs Act – the Trump administration’s one major piece of enacted legislation – did deliver the biggest corporate tax cut in US history, but ultimately workers benefited almost not at all.
This is one of the conclusions of a six-month investigation into the process that led to the tax cut by the Center for Public Integrity, a not-for-profit news agency based in Washington DC.
The full findings, based on interviews with three dozen key players and independent tax experts, and analysis of hundreds of pages of government documents, are published today in an in-depth piece.
‘Just 6% spent on workers’
The tax hike was sold to citizens as a move that would boost the economy, add jobs and hike wages. The president said in one speech that it would bring the average American household “around a $4,000 pay raise”.
Seizing on that, the Communications Workers of America, a 700,000-member union, asked eight major corporations to sign a pledge to hike worker wages by $4,000 a year if their tax rate was cut to 20%, the initial proposed rate. The companies balked and signed nothing.
Still, big business got what it wanted.
The bill signed into law by Trump on 22 December 2017 cut the corporate tax rate from 35 to 21%, the largest such rate cut in US history. “The most excited group out there are big CEOs,” said White House economic adviser Gary Cohn as the measure was making its way through Congress in 2017.
But the fears of ordinary workers in regard to those promised higher wages were realized.
The bulk of the $150bn the tax cut put into the hands of corporations in 2018 went into shareholder dividends and stock buy-backs, both of which line the pockets of the 10% of Americans who own 84% of the stocks.
Just 6% of the tax savings was spent on workers, according to Just Capital, a not-for-profit that tracks the Russell 1000 index.
In the first three months after the bill passed, the average weekly paycheck rose by $6.21. That would be $233 a year.
One retirement expert, J Mark Iwry, said more of the cut should be reaching workers: “It would seem appropriate for employers to share their tax savings with their workers – for example, through new employer 401k plan contributions or wage increases.”
Among the investigation’s other key takeaways:
- During the process deficit hawks who opposed adding any more to the existing $20tn in US debt, and who insisted on any tax cut having “revenue neutrality”, hemmed and hawed and finally folded, as one commentator put it, “like a cheap suit”. Still, some Republicans used $1.5tn in accounting devices to either hide the true cost of the bill or help justify their votes.
- One idea on the table for nearly six months was a so-called Border Adjustment Tax, which would have raised $1tn and largely paid for the tax cuts. But members of the Senate belittled it, saying it would never fly because it was opposed by a coalition of huge retailers. They were right. But when the border tax was abandoned, Congress had no plan B to offset the huge tax cuts.
- The bill was drafted in secret, partly to keep it from Congress’ own members who, it was feared, would leak it to lobbyists. Those crafting the bill worried that if the contents of their drafts leaked out, lobbyists would go to work gutting the bill. Hearings on the legislation were reduced to a bare minimum.
The bill was passed with astonishing speed that limited scrutiny. The Joint Committee on Taxation, a trusted nonpartisan agency that tried to give an honest assessment of the cost of the bill, was virtually cut from the picture. Its final and most important assessment was not delivered until the day Trump signed the bill. Not a single member of Congress saw that analysis before voting.
In a meeting that was the key turning point in the entire process, the Senate’s most vocal deficit hawk, Republican Bob Corker of Tennessee, who wanted to create no new debt, sat down with the Senate’s most strident supply-sider, Republican Pat Toomey of Pennsylvania, who wanted to borrow $2.5tn to pay for the tax cuts. They agreed on borrowing $1.5tn over 10 years. The meeting lasted all of 10 minutes.
Ultimately, three main themes emerged from the Center’s reporting.
One is that the bill, with its 21% corporate tax rate, was first and foremost a gift to multinationals. They had wanted cuts in the corporate tax rate for foreign and domestic profits for decades. Everything else flowed from that: the tax cuts for smaller businesses known as “pass-throughs”, which had been their holy grail, and the cuts for individuals, which were needed to sell the bill to voters.
The second: all the posturing about real “reform” of the tax code and “revenue neutrality” for the legislation was meaningless. In fact, the bill had to create a $1.5tn 10-year deficit to pay for its generous tax cuts. Without the deficit, the corporate rate of 21% could never have been achieved and, more important, the bill could not have passed at all.
The third was that the bill as passed was hugely problematic. It contained egregious mistakes, created massive new loopholes and opened the door to new forms of tax avoidance. Thirteen tax law professors from around the country, in a 68-page study, blasted its “rushed and secretive process” that resulted, they said, “in deeply flawed legislation”.
Among the disappointed were people who had been hired by the Trump administration to craft the bill – including Dana Trier, a New York lawyer who had been a tax policy official in the Ronald Reagan and George HW Bush administrations. He allowed himself to be lured back into government for one more go because he thought the tax code had gotten out of whack and reform was overdue.
In the end, though, Trier counted himself among those who were severely troubled by how the bill turned out. Parts were not well thought through, he told the Center, and “known problems” were not corrected because of the speed with which it passed.
“So, I mean I want to be honest with you, I was completely sick,” he said. “You know from my perspective I took one for the team and my reason for taking one for the team had not been fulfilled. I thought I could make it work. I could be one of those people who could help make it work. And in fact we didn’t reach my standard.”