Growth: What did corporations do with their tax cut?
Two years after the Trump administration slashed the corporate tax rate, the savings has produced a windfall for corporations such as FedEx, said Jim Tankersley in The New York Times. The international shipping giant paid $1.5 billion in taxes in 2017. “The next year,” FedEx “owed nothing.” Its effective tax rate had gone from 34 percent to “less than zero.” In the lead-up to the new law, FedEx CEO Frederick Smith “repeatedly took to the airwaves to champion the power of tax cuts,” saying in a 2017 radio interview that “we would see a renaissance of capital investment.” In fact, after a brief 2018 splurge, “overall business investment during Trump’s tenure has grown more slowly since the tax cuts were passed than before.” That pattern holds for FedEx, which invested $240 million less in capital items in 2018 than the company had projected before the cuts. Instead, FedEx spent more than $2 billion on “stock buybacks and dividend increases.” Smith didn’t take the Times’ broadside kindly, said Chris Isidore in CNN.com. He issued a “unique” statement challenging the paper’s publisher to a “public debate” on federal tax policy.
Smith would crush that debate, said Tiana Lowe in WashingtonExaminer.com. He advocated for the tax cut because it benefits everyone—including the Times, which turned a profit last year. The point of the law was “to diminish tax considerations in business decisions.” Exactly how it spends its cash is FedEx’s own business. Nobody questioned the Times when it “paid not one dime of federal taxes” in 2017, as Smith points out. That year, the newspaper added 80 jobs; FedEx created 58,000 new jobs in 2018. The idea that businesses would immediately plow any tax cuts into new investments is mistaken, said Karl Smith in Bloomberg.com. “None of the models that predicted a larger economy as a result of the tax cuts” said that would happen. The tax cuts should have a long-term effect, increasing the return on business investment. There are some signs they did that. But you can’t see much of that effect because Trump’s trade war has largely canceled it out. “Economists, finance ministers, and business leaders all blame the trade war for worsening investment conditions.”
“The corporate tax overhaul was overhyped,” said Geoff Colvin in Fortune. Fixing the system was necessary, but Trump “wiped out the benefits of his first-year policy successes by doubling down on his signature campaign issues: tariffs and immigration.” The administration’s assurances that the cuts would “increase household income by $4,000 to $9,000 a year” were a fantasy. Companies spent their cash on stock buybacks, not wages or investment. That’s not a surprise. What’s shocking is that just 10 companies account for 37 percent of the $1 trillion returned to shareholders, with Apple alone accounting for 16 percent. Fred Smith may be pleased that he got what he lobbied for, but the “blessings for business were front-loaded.” Since 2018, confidence among Smith’s fellow CEOs has “plunged to levels not seen since the darkest days of the financial crisis.” ■