By — Gretchen Frazee Gretchen Frazee Leave a comment 0comments Share Copy URL https://www.pbs.org/newshour/economy/making-sense/companies-are-paying-less-after-the-gop-tax-cut-and-its-showing-in-the-deficit Email Facebook Twitter LinkedIn Pinterest Tumblr Share on Facebook Share on Twitter Companies are paying less after the GOP tax cut, and it’s showing in the deficit Making Sen$e Oct 18, 2018 4:59 PM EDT There were a lot of numbers in the budget report that the Treasury Department issued this week. Here are a few of them. 2018 budget deficit: $779 billion The budget deficit compared to 2017: +$113 billion Government revenue compared to 2017: +$14 billion Government spending compared to 2017: +$127 billion Politicians have long decried the rising federal debt, the total amount the U.S. owes and a number that grows after each year’s budget deficit. But few presidents have actually been able to bring the deficit to heel. President Bill Clinton is the only president since Calvin Coolidge to have a budget surplus over the course of his administration. Early in his presidency, President Donald Trump promised to “swiftly” balance the budget. He also said the Republican tax cut plan, signed into law last December and estimated to cost $1.9 trillion over the next 10 years, would not increase the deficit. Now, new numbers released this week show the tax cuts, combined with the required payouts for Social Security and Medicaid and increased spending on defense under Trump, are, in fact, increasing the deficit. Which brings us to one more number that stuck out in the new report: $204.7 billion. That’s how much corporations paid in taxes in fiscal year 2018. It’s striking because the figure is more than $90 billion less than the $297 billion corporations paid in taxes the previous fiscal year. “The numbers are a pretty good reflection of the underlying provisions of the tax bill,” said Kimberly Clausing, an economics professor at Reed College and a former member of the Council of Economic Advisers during the Clinton administration. The tax reform law dropped the corporate income tax rate from 35 percent to 21 percent, so companies are, in effect, being charged about a third less in taxes than they were before. But that’s not the end of the story. There are incentives in the tax law for companies to bring their earnings from overseas back to the U.S., a policy intended to spark more investment in domestic facilities and American jobs. During the tax bill debate last year, Republicans argued that once more companies return home after having retreated abroad to take advantage of lower corporate tax rates, the increased productivity would drive up U.S. tax revenue and help offset the bill’s cost. “If we get any growth in the corporate sector and they increase domestic investment, we should start to see that trickle upward,” said Jennifer Blouin, a professor of accounting and taxation at the University of Pennsylvania Wharton School. But some evidence shows that many companies are actually taking the money they repatriated and putting it toward dividends or buying back their own stocks, which benefits shareholders. (The same happened back in 2004 when the U.S. allowed a one-time tax holiday for repatriated foreign earnings.) “They’re lifting the more unequal side of the economy at the expense of the more equal or the wage share of the economy,” Jared Bernstein, an economist who worked in the Obama administration, told the PBS NewsHour earlier this year. Other critics of the tax bill argue companies already had enough resources to invest in new U.S. projects and facilities, but chose not to do so because they would not be profitable enough. In that case, Blouin said, giving the money back to shareholders who are likely to reinvest it elsewhere is a better prospect than companies spending the money on risky ventures. If companies “have access to that cash, they might be more likely to do something dumb with it,” Blouin said. By — Gretchen Frazee Gretchen Frazee Gretchen Frazee is a Senior Coordinating Broadcast Producer for the PBS NewsHour. @gretchenfrazee
There were a lot of numbers in the budget report that the Treasury Department issued this week. Here are a few of them. 2018 budget deficit: $779 billion The budget deficit compared to 2017: +$113 billion Government revenue compared to 2017: +$14 billion Government spending compared to 2017: +$127 billion Politicians have long decried the rising federal debt, the total amount the U.S. owes and a number that grows after each year’s budget deficit. But few presidents have actually been able to bring the deficit to heel. President Bill Clinton is the only president since Calvin Coolidge to have a budget surplus over the course of his administration. Early in his presidency, President Donald Trump promised to “swiftly” balance the budget. He also said the Republican tax cut plan, signed into law last December and estimated to cost $1.9 trillion over the next 10 years, would not increase the deficit. Now, new numbers released this week show the tax cuts, combined with the required payouts for Social Security and Medicaid and increased spending on defense under Trump, are, in fact, increasing the deficit. Which brings us to one more number that stuck out in the new report: $204.7 billion. That’s how much corporations paid in taxes in fiscal year 2018. It’s striking because the figure is more than $90 billion less than the $297 billion corporations paid in taxes the previous fiscal year. “The numbers are a pretty good reflection of the underlying provisions of the tax bill,” said Kimberly Clausing, an economics professor at Reed College and a former member of the Council of Economic Advisers during the Clinton administration. The tax reform law dropped the corporate income tax rate from 35 percent to 21 percent, so companies are, in effect, being charged about a third less in taxes than they were before. But that’s not the end of the story. There are incentives in the tax law for companies to bring their earnings from overseas back to the U.S., a policy intended to spark more investment in domestic facilities and American jobs. During the tax bill debate last year, Republicans argued that once more companies return home after having retreated abroad to take advantage of lower corporate tax rates, the increased productivity would drive up U.S. tax revenue and help offset the bill’s cost. “If we get any growth in the corporate sector and they increase domestic investment, we should start to see that trickle upward,” said Jennifer Blouin, a professor of accounting and taxation at the University of Pennsylvania Wharton School. But some evidence shows that many companies are actually taking the money they repatriated and putting it toward dividends or buying back their own stocks, which benefits shareholders. (The same happened back in 2004 when the U.S. allowed a one-time tax holiday for repatriated foreign earnings.) “They’re lifting the more unequal side of the economy at the expense of the more equal or the wage share of the economy,” Jared Bernstein, an economist who worked in the Obama administration, told the PBS NewsHour earlier this year. Other critics of the tax bill argue companies already had enough resources to invest in new U.S. projects and facilities, but chose not to do so because they would not be profitable enough. In that case, Blouin said, giving the money back to shareholders who are likely to reinvest it elsewhere is a better prospect than companies spending the money on risky ventures. If companies “have access to that cash, they might be more likely to do something dumb with it,” Blouin said.