House Speaker Paul Ryan
The staggering cost of Donald Trump’s company tax handout to corporate America is starting to worry even Republicans as evidence continues to mount that few of the benefits claimed by tax cut advocates have materialised.
Last year, the White House claimed that US households would enjoy income gains of between US$4000 and US$9000 a year as companies channelled higher post-tax profits into wages rises. The US$9000 figure was attacked by one of the economists whose work was used to derive it, and independent sources derided the US$4000 figure as well.
The latest wages data from the US Bureau of Labor for the first quarter of the year shows that US workers are on track to receive an annual wage increase of just $323 — in line with wages growth over the last two years. Even assuming a two-income household, that’s still a fraction of the most conservative Trump claim.
As has been demonstrated time and again, the tax windfall has gone into share buybacks and higher dividends, benefiting investors and company executives, rather than increasing investment or increasing wages. Nor is the share buyback splurge over. Overnight, the Financial Times reported analysis that “US companies are expected to shower investors with a record amount of share buybacks in the current earnings season”. The recent poor performance of the US sharemarket also means companies have greater scope for share buybacks. “The buyback and dividend bonanza would be a welcome boost to the US stock market,” the FT believes.
The extraordinary cost of the company tax cuts is now receiving greater attention, courtesy of two things: the Congressional Budget Office’s recent fiscal report that showed the tax cut will cost more than US$1.8 trillion over the next 11 years, and House Speaker Paul Ryan’s retirement announcement. Ryan, with an unwarranted reputation as a policy-focused fiscal hawk, will leave with both the Republicans’ House majority under threat from a looming “blue wave” and the US deficit now predicted to reach over US$1 trillion a year in 2020 and nearly 100% of GDP by the late 2020s.
Republicans themselves are now starting to wonder what they have done. “If it ends up costing what has been laid out here, it could well be one of the worst votes I’ve made,” Tennessee GOP senator Bob Corker said recently about the tax cut. “This Congress and this administration likely will go down as one of the most fiscally irresponsible administrations and congresses that we’ve had.”
Australia is in a much healthier fiscal position than the US: our deficit is narrowing, and likely to be gone by 2020 (albeit leaving a large net debt behind to pay down). But the same scenes will play out here if the government is able to con Senate crossbenchers into passing its tax cut bill: the dearth of any benefits for ordinary workers, and the self-indulgent splurge in buybacks and dividends by companies insisting they desperately need tax to invest more.