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Trump Touts Tax Cuts as Promise Fulfilled; Others Less Sanguine

Posted on January 19, 2018 by Jonathan Curry

President Trump took a victory lap following a string of corporate announcements of employee bonuses and capital investments in response to the tax reform law, but tax observers urged a more cautious outlook.

Citing recent announcements by companies like Apple Inc., which has said it will be investing $350 billion on development in the United States and giving its employees a $2,500 bonus, Trump declared January 18 that he had delivered on his campaign promise of more jobs and higher wages through tax cuts.

More than 2 million American workers have already benefited from the enactment of the Tax Cuts and Jobs Act (P.L. 115-97) in the form of bonuses, pay raises, or more retirement savings, “and it hasn’t even been a month since I signed the bill,” Trump said at an event in Pittsburgh. “It’s turned out to be much bigger than we all thought.”

Trump promised that American workers would “soon be seeing the signs of the American comeback” when their paychecks are adjusted to reflect the new IRS withholding tables in February. And he further noted positive overall employment numbers, highlighting the low levels of unemployment across demographics as well as the creation of 2.2 million jobs since the 2016 presidential election.

Big Picture

Announcements by individual companies of employee bonuses or new investments may be good news for those employees, but attributing them to the tax cuts is tricky, tax observers told Tax Analysts.

Evaluating the tax cuts’ effectiveness will require “carefully monitor[ing] the longer-term macroeconomic data,” John M. Buhl of the Tax Foundation said. He added that some of the announced wage increases or bonuses might have happened anyway, with or without the tax cuts.

That was the argument made by Americans for Tax Fairness in a January 18 release, which noted that Apple’s announcement never explicitly tied its $350 billion development decision to the new tax reform law, except to say that it would pay $38 billion under the new deemed repatriation provisions. The release also notes that Apple was already planning to spend $55 billion in investment in 2018, which, at that pace, would amount to $275 billion over five years.

According to Americans for Tax Fairness, rather than spurring hundreds of billions of dollars in new investment, the tax reform law instead offers Apple a nearly $40 billion tax cut on offshore profits through the new, low repatriation rate.

Eric Toder of the Urban-Brookings Tax Policy Center likewise urged taking a longer view of the tax cuts’ effectiveness. He suggested that if the economy experiences sustained higher growth rates, then Trump will have earned “some bragging rights” — with the caveat that it would still be hard to say what exactly caused the higher growth.

Toder suggested that many of the employee bonuses awarded in 2017 could have been motivated in part to take advantage of the 35 percent corporate tax rate before it switched to 21 percent starting in 2018. The 2017 bonus payments would be deductible at a 35 percent rate instead of 21 percent, “so it makes sense to advance compensation,” he said. Data about any unusual seasonal patterns in compensation following the tax cuts would likely be available within a couple months, he added.

Toder also noted that the economy was already likely to see wages increase because labor markets have been getting steadily tighter since the Great Recession. “At some point,” he said, “one can expect labor compensation to rise.”

And just as determining how much economic growth to attribute directly to the tax cuts is a challenge, “the actions of a few firms do not say much about changes in economy-wide wages,” Toder added.

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