President Trump used his first State of the Union Address as an occasion to brag extensively about his new tax law. He even installed three human props in the First Lady’s box to illustrate the wonders of the bill for ordinary Americans.
Not surprisingly, the president’s boasts were mostly bluster.
The human props included Steve Staub and Sandy Keplinger, who own a small manufacturing business in Dayton, Ohio, and one of their employees, a welder named Corey Adams. The Staubs claim to be expanding their business and handing out employee raises as a result of new tax law.
We’ll never know if that’s the real reason for the pay increases. Because of labor market tightening that started under the Obama administration, it’s natural that employers are feeling pressure to boost wages. Of course, that didn’t stop the president from taking full credit.
“Corey plans to invest his tax-cut raise into his new home and his two daughters’ education,” Trump proudly proclaimed.
I certainly don’t know the full financial situation of Corey Adams and his family. But if I were him, I’d hold off on any big investments. What Trump left out of his speech are the huge costs that will come from the new tax law—costs that cannot yet be precisely calculated.
Take, for example, the higher health insurance costs that will result from the tax law’s elimination of the individual mandate in Obamacare, what Trump called in his speech “an especially cruel tax.”
The Congressional Budget Office predicts this will lead to a 10% average increase in premiums for Americans who buy insurance in the individual market. An estimated 13 million more people will lose their insurance because they can no longer afford it.
According to the Center for American Progress, that average premium hike works out to about $1,500 per year for an Ohio middle-class family of four, which could very well wipe out any tax savings such a family may receive during the first eight years under the new law. Individual tax cuts are set to expire after 2025.
Corporate tax cuts, by contrast, are intended to be permanent, and will cost $1.4 trillion in lost revenue over 10 years. Republicans would like to pay for these corporate giveaways through cuts that will hit millions of ordinary American families. For example, the GOP budget proposal includes $473 billion in cuts to Medicare and $1 trillion in cuts to Medicaid.
Other vital programs, like Social Security, may also be on the line as the ballooning of the deficit strengthens the hands of those in Washington who have long called for benefits cuts.
Big publicly traded corporations, especially multinationals, will enjoy the vast bulk of the tax savings. But it’s not surprising that Trump instead chose the owners of a small firm like Staub Manufacturing as his State of the Union guests. Many of the biggest companies in America are tarnishing Trump’s tax touting efforts by slashing workers and using their windfalls mostly to enrich executives and wealthy shareholders.
According to a new report by Americans for Tax Fairness, some of the biggest names in Corporate America, including AT&T (T), Comcast (CMCSA), Humana (HUM), Macy’s, (M) Walmart (WMT), Pfizer (PFE), and Wells Fargo (WFC), have all announced plans for job cuts in 2018. Meanwhile, 20 big corporations have announced new stock buybacks worth $100 billion since the Senate passed the tax bill in early December
This dwarfs the spending by some companies on one-time bonuses. And the rewards from artificially inflating the value of shares by repurchasing them on the open market will flow to wealthy shareholders and executives with stock-based pay.
One reason these big corporations are feeling so flush is that the new tax law offers massive tax breaks to firms that operate globally.
Under the old rules, U.S. firms with foreign earnings were supposed to pay a 35% tax rate when they brought those profits back to the United States. Under the new rules, only a fraction of offshore profits will be subject to U.S. taxes—and at a rate of only 10.5%.
Since firms like Staub aren’t likely to be able to take advantage of such tax breaks, this will make the playing field between small and giant businesses even more uneven.
President Trump may be getting a PR bounce out of the tax plan. But once the reality sinks in, even his human props may see things differently.
Sarah Anderson is a co-editor of Inequality.org at the Institute for Policy Studies.