Tax Cuts and Jobs Act: $1.5 Trillion Cut Favoring Corporations and the Wealthy
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The TCJA was passed through the budget reconciliation process with no Democratic votes; the process required the individual tax cuts to expire (via budget rules) while making the corporate rate cut permanent. Trump claimed the cut would generate economic growth sufficient to pay for itself — a prediction rejected by the CBO, the JCT, and most economists. The $1.9 trillion corporate stock buyback surge in 2018 documented that the primary immediate effect was share buybacks rather than business investment or wage growth. The Trump family directly benefited from the pass-through deduction. Trump signed it into law and called it 'one of the great Christmas gifts to middle-income people.'
Overview
The Tax Cuts and Jobs Act permanently cut the corporate tax rate and temporarily cut individual rates. "Temporarily" is doing a lot of work in that sentence: the individual cuts expire after 2025, while the corporate cuts are permanent. The architecture was driven by budget rules, not policy design.
Trump said the tax cut would pay for itself. The CBO said it wouldn't. The CBO was right.
The Structure
The bill used budget reconciliation — a process that bypasses the Senate filibuster but requires the bill to comply with deficit limits. To stay within those limits, the corporate rate cut was made permanent while individual tax reductions were set to expire. The result is that working- and middle-class taxpayers received a temporary benefit while corporate shareholders received a permanent one.
This was a legislative choice, not an accounting accident.
The Buybacks
When companies received their tax windfall in 2018, the most common use was stock buybacks — corporations purchasing their own shares to increase the stock price, which primarily benefits shareholders. Buybacks surged to $1.1 trillion in 2018, more than double the prior year.
Trump had predicted that corporations would use the money for wages and investment. Some did. Most didn't, at rates that would have required it.
The Trump Family
The pass-through deduction — Section 199A — allowed owners of pass-through businesses (LLCs, partnerships, S-corps) to deduct 20% of their income. The Trump Organization is structured as a collection of pass-through entities. The President personally benefited from a provision in the tax bill he signed.
Timeline
Sequence of events
November 2, 2017
House tax bill introduced — 7-week legislative sprint
House Ways and Means Committee introduces the Tax Cuts and Jobs Act with limited committee hearings. The Senate writes its own version concurrently. The process is the fastest major tax legislation since 1986.
December 1, 2017
Senate passes TCJA 51-49 at 2 AM
The Senate passes the Tax Cuts and Jobs Act 51-49 in a middle-of-the-night vote. No Democrats vote for it. Bob Corker (R-TN) is the only Republican to vote against.
December 22, 2017
Trump signs TCJA into law
Trump signs the Tax Cuts and Jobs Act, calling it 'one of the great Christmas gifts to middle-income people.' Corporate tax rate cut from 35% to 21% is permanent; individual cuts expire after 2025.
December 22, 2018
One year later: $1.1 trillion in stock buybacks
Analysis one year after passage documents that corporate stock buybacks surged to $1.1 trillion in 2018 — more than double the prior year — as companies returned the tax windfall to shareholders rather than investing in wages or capital.
Sources
- ↑ Tax Bill Passes Senate and Is Signed by Trump — The New York Times
- ↑ A year after the tax cuts: What happened? — The Washington Post
- ↑ One year of tax cuts: More buybacks than wage gains — The Associated Press
- ↑ The Budget and Economic Outlook: 2018 to 2028 — Congressional Budget Office
Verification