Overseas buyers had been large winners from Trump’s tax invoice

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Foreign investors were big winners from Trump's tax bill

Three years ago this month, President Donald Trump promised “pro-American tax reform”. But the tax overhaul he put into law in late 2017 was anything but “pro-American”. As the CAP pointed out when it passed the tax cut, some of its biggest winners have been wealthy foreign investors. Recent estimates show that the Trump tax bill has given foreign investors larger tax cuts over the past three years than middle- and working-class Americans in all of the states that Trump brought together in 2016 – combined.

At the heart of the Trump Tax Act, also known as the Tax Cuts and Jobs Act (TCJA), was a massive corporate tax cut. Corporate tax cuts mostly benefit the people who own businesses – especially shareholders. The people who own company stocks are overwhelmingly rich. Of all American equity holdings, the top 1 percent by wealth owns 52 percent and the top 10 percent by wealth owns 87 percent. And as Steve Rosenthal of the Tax Policy Center found, around 35 percent of US company stocks are owned by foreigners. Rosenthal’s estimate includes US stocks held by overseas portfolio investors, including high net worth foreign individuals and sovereign wealth funds from countries like Norway, China and Saudi Arabia. This includes direct corporate holdings such as overseas multinational corporations that have US subsidiaries.

This means that much of Trump’s tax cut went to foreign investors. According to the latest estimates by the Institute for Taxes and Economic Policy, foreign investors received tax cuts of $ 134 billion from 2018 to 2020, the three years the law was in effect. *

To put that in perspective: According to ITEP estimates, more than the bottom 60 percent of American tax advisors, who make up around 95 million households, emerged from the Trump tax law. (see figure 1)

And it’s a bigger tax cut than the Trump Tax Bill for the bottom 80 percent of tax investigators in the 30 states that President Trump promoted in 2016 – roughly 72 million households combined. (see figure 2)

illustration 1

Figure 2

Figure 3

TCJA proponents argue that corporate tax cuts ultimately spill over to American workers in the form of higher wages. In the short term, however, TCJA’s steep, immediate corporate tax cut was just a godsend for shareholders. And the trickle-down theory that workers benefit from it in the long term doesn’t work in practice. The theory was that corporate tax cuts would spark such a boom in business investment that workers would become more productive, and workers would benefit from those productivity gains in the form of higher wages. But TCJA has not sparked an investment boom. In fact, corporate investment was already declining before the COVID-19-triggered economic crisis. Instead, companies used their tax cuts to distribute more cash to shareholders through dividends and share buybacks. Corporations have also increased their CEOs’ compensation packages since the TCJA went into effect, the Economic Policy Institute noted.

The foreign investor giveaway isn’t the only way the 2017 tax law broke Trump’s “pro-America” promise. The government created perverse incentives for US companies to locate physical assets such as factories overseas in what Kimberly Clausing, Senior Fellow of the GAP, calls the America Last Tax Policy. The Trump administration also sweetened the corporate tax cut by joining the lobbying work of overseas corporations and foreign banks on key provisions of the TCJA implementation regulations.

Worst of all, the bill allocated nearly $ 2 trillion to ineffective tax cuts that worsened inequality, rather than investments that create widespread wealth for Americans, including science, infrastructure, climate resilience, and early childhood. Despite the high promises made about it, the 2017 tax bill has failed American families.

Seth Hanlon is a Senior Fellow at the Center for American Progress.

* Author’s Note: ITEP’s national and state estimates of the 2018 TCJA impact can be found here. Estimates for 2019 are here; and estimates for 2020 are here.