The Effects of the Latest Corporate Tax Cuts Reflect Muddy Results

Economists debating the effects of the Trump Administration’s corporate tax cut disagree on how the $1.5 trillion in tax savings generated over the next 10 years will impact American workers. Proponents say corporate tax cuts “trickle down” to individuals, help companies compete globally, and spur investment. Opponents argue that the cuts will create a budget deficit, add more corporate wealth that companies put into dividends and stock buybacks for shareholders, and minimally impact the average worker.

Although it’s far too early to assess the long-term effects of the Tax Cuts & Jobs Act of 2017 on workers, tax policy analysts agree that the permanently lowered corporate tax rate, from 35 % to 21 %, is a windfall for corporations. Some note that due to loopholes, corporations were already paying taxes at the lower rate. Additionally, American businesses now no longer have to pay corporate taxes on money they earn abroad. Corporate income brought back to the U.S. is now taxed between 8 and 15.5 percent, instead of 35 percent.

Approximately 180 companies in the Standard & Poor’s 500 Index saw their effective tax rate drop by 6 percent on average in the first quarter of 2018, saving them a total of nearly $13 billion in taxes. Companies like Alphabet, Inc., Google’s parent, invested heavily in artificial intelligence. Bank of America’s first quarter tax bill fell by $709 million, and the company posted $6.9 billion in profits, a 30 percent increase, according to Bloomberg News.

Prior to the cuts that President Donald Trump gifted to corporations days before Christmas, some companies pledged to spend more on capital improvements and increase wages. Of the 3,500 publicly traded companies, 70 said they would increase wages. However, it’s unclear if this is a result of the tax cut or due to competition and the historically low unemployment rate. AT&T said planned to spend $1 billion more in the U.S. on investment, and provide $1,000 bonuses to 200,000 U.S. workers. Wells Fargo, Boeing, and Comcast also pledged to provide more bonuses, raises, and investment, USA Today reports. Apple said it plans to spend $30 billion in the U.S. within the next five years, adding 20,000 jobs. But the company’s global workforce has grown by nearly twice as much in 2012, Bloomberg reports. Walmart raised workers’ hourly wages from $9 to $11 hourly, but the company had already planned on wage increases to compete with Target, which plans to raise minimum hourly wage to $15 by 2020, writes Ian Salisbury for Money.