Thursday, December 21, 2017

The Republican Myth of Corporate Tax Cuts/Job Growth Comes Crashing Down

The Gullibillies sure liked it. "We're going to cut taxes for corporations so that they can create all sorts of new, high-paid jobs. You'll be in hog heaven then."

Of course the US government remains securely in the red so these tax cuts are being paid for with more debt, more borrowed money, but, if it creates this new Workers' Paradise, who cares?

Only there's this glitch. Corporations aren't using their windfall tax cut for expansion and job creation. They're using it to restructure to enhance their own profitability.

WEEKS BEFORE THE Republican-led Congress moved toward final passage of its corporate tax cut bill, major companies had already begun a surge of stock buybacks — confirming critics’ fears that the windfall of lower rates will be used for self-enrichment rather than job growth.

Home Depot led the buyback splurge, pocketing $15 billion. On an earnings call held earlier this month, the company’s CFO Carol Tomé quietly admitted the strategy, when asked about the impact of tax reform on the firm:

"It really all depends on if it happens and when it happens and how we would spend it. Cash is fungible. Right now, we’re thinking it might not happen until 2019, so obviously we are using internally generated cash in 2018 to invest in the business and return capital to our shareholders. If it were to happen in 2019, we might use the tax — cash tax savings to invest in the business and then use — generated cash to back buy [sic] shares, it’s all fungible. The point is, we’re going to generate a lot, we may get some from tax reform and we will use it. We will invest back in the business, and we will return it our [sic] shareholders."

By “return it to our shareholders,” she is referring to a buyback, which drives up the price of a stock and can come with dividends as well. Typically, executives hold much of their wealth in company stock, and their compensation is tied to the performance of the shares.

Other corporations are expected to use the windfall to increase mergers and acquisitions (M&A) or invest in automation. “Industry executives have been eagerly anticipating tax reform in earnings calls, interviews and casual conversation all year. Multiple CEOs have projected major M&A activity will follow if any kind of corporate rate reduction is finalized, further accelerating the rapid pace of consolidation in the industry,” wrote one industry publication about how waste companies are anticipating tax reform.

There's a couple of  tired and true 'job killers' for you - automation and consolidation.

Sorry, Gullibillies, but Trix are for kids. Someone told you that Trump was going to liberate you from the shackles of neoliberalism and return you to some fictitious time of milk and honey. No, ain't gonna happen. Remember Donald's motto - "you play ball with me and I'll stick the bat right up your arse."


Troy said...

Ugh, stock buyback. Artificial profits. It's just another Wall Street scam. Hell, financial disasters are just queuing up and jostling for position to be the first thing to take down the US economy now.

And without proper financial controls, this sort of situation will just repeat itself, over and over again.

The tax cuts weaken the structure of the US government to a point where when the economy collapses, there might not be enough of a foundation which to re-lift the economy back to any semblance of its former form.

And each time there's a financial collapse, it'll come back weaker and poorer. And the collapses will happen sooner each time. It's like a bad heart.

I can't help wondering when the deflationary spiral will begin. The neo-liberal system can handle hyperinflation, but it's the deflationary spiral neo-liberals don't understand, and have never prepared for.

"One of the hardest lessons in young Sam's life had been finding out that the people in charge weren't in charge. It had been finding out that governments were not, on the whole, staffed by people who had a grip, and that plans were what people made instead of thinking"
(Terry Pratchett, Night Watch).

This tax plan, the Trump Republicans made this plan up instead of thinking. Hell, in some mad way, politics has become like Orwell's statement where you can "simply (throw) your mind open and (let) the ready-made phrases come crowding in". In this case, Trump's Republicans let the policies come flooding in simply by declaring the majesty of tax cuts, and allowed the bluster and bullshit to override any and all semblance of common sense.

2018 will be a hell of a year when the tax cuts hit the economy. We might not feel the shocks until 2019, but the damage will be considerable.

The Mound of Sound said...

Now, now, now Troy. One man's Wall Street scam is another's 'swamp drained.' I suppose it's a blessing that the Gullibillies don't even feel the knife going in.

Check out Joy Reid's report quoting a Republican source telling her that establishment Republicans are "cashing out."

And a Merry Christmas to you, Troy.

Trailblazer said...

Trump said, before his election, that he would be the first President to make money from the job.
It was perhaps the first and one time he told the truth.


Anonymous said...

Republican myth?

Paul Martin reduced federal corporate taxes from 30% to 22%. Harper cut them to 15%. The NDP ran on reversing these tax cuts. The "true left" Liberal party ran on keeping them as is for "economic growth." The provinces also slashed corporate taxes. ON by $2B-4B a year while they ran a $10B deficit.

Trump is right that under the current corporate tax regime the US is not paying 40% as listed as the official number. The effective rate is much lower. "Profitable corporations paid U.S. income taxes amounting to just 12.6% of worldwide income in 2010" according to 'Americans for Tax Fairness.'

"General Electric, Boeing, Verizon and 23 other profitable Fortune 500 firms paid no federal income taxes from 2008 to 2012."

Trump's pledge is to restructure the system to prevent corporations from dodging their tax bills. He says he's actually raising the corporate tax rate to 22%. So he will be judged by Americans on his ability to follow through. (He did follow through on killing the TPP, renegotiating NAFTA, standing up to Chinese mercantilism and stopping the MIC from reviving the Cold War with Russia.)

Trump cut the top tax income rate 3 percentage points. JFK cut it by 20 points (90% to 70%). Reagan by 40 points. (Around 30%.) Bush Jr. made the rate around 15% with a capital gains loophole. (Clinton and Obama kept most of the tax cuts of their Republican predecessors in place.)