As the Republican Tax Cuts Take Effect

Well, the effects of the Republican Tax Cuts and Jobs Act (TCJA) are starting to be felt, and whether you're surprised depends on who you've been listening to. As Paul Krugman has frequent reason to say, "Facts Have a Well-Known Liberal Bias."

• The punch list of errors in the rapidly passed and little read bill is getting longer. Politico says "One snafu, which could potentially affect President Donald Trump’s real estate business, prevents people making various types of improvements to non-residential real estate from immediately deducting their entire cost, as lawmakers intended. An apparent typo means they have to instead take those breaks piecemeal over the next 39 years. That is already squeezing some companies’ finances, said Rachelle Bernstein, tax counsel at the National Retail Federation. “There are real economic implications right now,” she said."
 
• As of today the Americans for Tax Reform website says "4,000,000 Americans (and counting) will receive Trump Tax Reform bonuses," but that's less than 3% of total nonfarm employees in January (148 million according to the Bureau of Labor Statistics). And the use of one-time bonuses rather than pay increases has brought comment: "Something more permanent like increasing wages or increasing the 401(k) match is a better way to "boost the long-term savings" of employees," says Garrett Oakley, a certified financial planner at Betterment.
 
• Paul Krugman tells us that a Treasury Department technical paper from 2012 on the distribution of corporate tax changes in the economy "reached the inconvenient conclusion" that most of the tax effect is on the owners of corporate capital, and only a small share on workers. And those effects will take decades to appear. "So yes, this is a huge tax cut not just for the 1 percent, but for the 0.1%"
 
• Now a New York Times editorial, "Well-Heeled Investors Reap the Republican Tax Cut Bonanza," says we told you so.
  

  . . . the President and Republican lawmakers' claim[ed] that a corporate tax cut would "boost workers’ incomes even as it added $1.5 trillion to the debt that future generations would have to pay off.

  Now corporate announcements and analyst reports confirm what honest observers always said — this claim is pure fantasy. . . Companies are rewarding their stockholders.

  Businesses are buying back shares, which creates demand for the stocks, boosts share prices and benefits investors. Some of the cash is going to increase dividends. And a chunk will go to acquiring other businesses, creating larger corporations that face less competition.

  In addition to benefiting investors, these maneuvers will end up boosting the pay of top executives because their compensation packages are often tied to the price of their companies’ stock. Finally, a small sliver of the money will find its way into paychecks of rank-and-file employees, but it won’t be a big boost and will probably come in the form of a temporary bonus, rather than a lasting raise.

  Morgan Stanley analysts estimated that 43 percent of corporate tax savings would go to buybacks and dividends and nearly 19 percent would help pay for mergers and acquisitions. Just 17 percent would be used for capital investment, and even a smaller share, 13 percent, would go toward bonuses and raises. Other Wall Street analysts have issued similar reports. If more evidence was needed, Axios reported that just nine pharmaceutical companies have announced $50 billion in buybacks since the tax law was passed.

  Mr. Trump might argue that it doesn’t much matter that the tax cuts will be a boon for investors because many Americans own stocks. The president has recently touted the rising value of 401(k) accounts as a benefit of the tax law. But roughly half of all families own no stock, and most people have holdings that are worth less than $5,000. Most stock holdings, a whopping 84 percent, are in the hands of people whose incomes put them in the top 10 percent of households.