Remember in 2017, when Republicans said the tax bill would pay for itself—the idea being that the stimulant effects of cutting taxes would be so huge that businesses’ taxable profits would grow and thus revenue would increase? That the deficit would actually shrink?
Haha, yeah, so, that didn’t happen.
Politico reported yesterday that the U.S. Treasury reported a 31 percent decline in corporate tax revenues in 2018. In fact, “total corporate taxes are at the lowest levels seen in more than 50 years.” This is the opposite of what we need, which is for businesses to pay a lot more taxes to fund public services.
According to Politico, corporate tax revenue is so low that the only other times they’ve been this low were after recessions. Despite that strong economy we keep hearing about, corporate tax revenues are as low as they are when the economy is crashing. Good, normal.
The idea that the tax bill would pay for itself was an obvious lie, and we knew that at the time. But it’s an even bigger lie than we knew: The drop in corporate tax revenues in 2018 was almost twice as big as the Congressional Budget Office had predicted, according to Politico. Worse still, the CBO thought revenues would increase 20 percent this year, but instead they’re down 8.7 percent.
Politico notes several possible explanations for this, like Trump’s tariffs, which could have increased the costs that businesses are able to deduct from their taxes, or that companies didn’t decide to shift their profits from other countries where they operate back to the U.S.. Why would they, if they still get a lower rate abroad?
But think as well about where so much of that extra tax revenue went instead: Stock buybacks. Top corporations spent $806 billion on stock buybacks in 2018—the previous record was set in 2007, by the way, if you wanted a reason to worry about recession—and where does that money go? To the rich people who owned those stocks. Where do they put that money? Some of it gets spent on whatever it is rich people buy—the “luxury goods” market is growing—but a lot of it is just stashed away in their offshore bank accounts.
It doesn’t necessarily get reinvested into the economy; it just sits there, being a big pile of money. A survey of companies released in January found that 84 percent of them had no plans to invest or hire, up from 81 percent the previous year, despite the huge windfall from the tax cuts. So, instead of taking their extra money and spending it on things that might otherwise have generated more tax revenue for the government, they just gave it to their rich shareholders, who put it in the Cayman Islands or bought another penthouse.
Trump and the Republicans don’t care that this happened; they never really thought this tax cut was going to pay for itself, and they certainly didn’t care about the deficit. This is actually how it was supposed to work all along.