Did the TCJA go too far to help corporations? Senator Marco Rubio says “Probably.” He explained that a lot of multinational corporations will “buy back shares to drive up the price… Some of them will be forced, because they’re sitting on historic levels of cash, to pay out dividends to shareholders….That isn’t going to create dramatic economic growth.” Rubio tried—unsuccessfully—to convince fellow Republicans to adopt a slightly higher a corporate tax rate than its final 21 percent and use the money to boost tax benefits for families with children.
Indeed, when opportunity knocked, Congress didn’t answer. TPC’s Bill Gale and Len Burman explain how Congress missed a chance to reform the corporate tax, and as a result, the TCJA’s corporate tax cut from 35 percent to 21 percent “will likely have a much smaller impact on growth than its supporters promise.”
But the TCJA might hurt a bit, once… Bloomberg reports that Goldman Sachs’ profits will fall by about $5 billion this year thanks to the TCJA. About two-thirds of the hit comes from the repatriation tax. JP Morgan estimates a one-time $2 billion tax payment, while Citigroup has estimated as much as $20 billion. Companies are taking their lumps in 2017 because accounting rules require the companies to adjust their financials in the year in which the new tax law was signed.
China wants to take some pain away. In response to the TCJA, the Chinese government announced late last week that it will temporarily exempt US companies from paying tax on their earnings, as long as they invest their earnings in sectors like Chinese railways, mining, technology and agriculture. The measure is retroactive from January 1, 2017.
The TCJA traveled a short and winding road. TPC’s Howard Gleckman charts the evolution of the TCJA from the Trump Administration’s April outline through September’s Unified Framework to the final December law. Overall, it retained its main goal of cutting taxes for business, but the plan became smaller and less regressive along the way—at least through 2025.
Making life easier for some taxpayers…. The IRS announced last week that workers should not have to submit new W-4s when tax withholding changes to reflect the TCJA. The agency said "The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time." Employers and payroll firms are scrambling to adjust withholding by February.
But harder for others… Last week, homeowners stood in line in high-tax states, hoping to prepay their 2018 property taxes in 2017 to deduct them fully from 2017 taxes. But they ran into a snag: The IRS announced Wednesday that 2018 property taxes paid in 2017 would be deductible in 2017 only if the 2018 taxes were assessed before Jan 1. Then, taxpayers tried to get their money back. Frustration abounds.
Hail to the Chief… Accountant. In his Friday interview with The New York Times, President Trump had a lot to say about his tax bill success. Perhaps the most interesting: “I know the details of taxes better than anybody. Better than the greatest CPA.”
Congress will be in recess this week. The Daily Deduction resumes its regular schedule on Monday, January 8.
If you’d like to tell us about a new research paper or have any comments about the Daily Deduction, TPC’s summary of the day’s tax news, write Renu Zaretsky at [email protected]. You can sign up here to receive the Daily Deduction as an email newsletter every weekday morning (Mondays only when Congress is in recess) at 8:00 am.
