Collect billions of billionaires? Tax experts say it's not that easy

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michael barbaro

I am Michael Barbaro from the New York Times. This is "The Daily".

Today: When they campaigned for the Trump administration to cut taxes by $ 1.5 trillion, companies promised to immediately reinvest the savings in the U.S. economy. Jim Tankersley is investigating whether this actually happened.

It's Tuesday November 19th.

Archived Recording (Donald Trump)

I tell all Americans it's time for change and time for leadership. Just think about what we can achieve in the first 100 days of a Trump administration. We're going to have the biggest tax cut since Ronald Reagan –

Jim Tankersley

During the 2016 presidential campaign, Donald Trump promised to cut taxes.

Archived Recording (Donald Trump)

We propose a comprehensive tax relief for the middle class and reduce trade tax from 35 percent to 15 percent.

Jim Tankersley

Major tax cuts for individuals, and especially for companies, which he said would revitalize the American economy as a large part of his economic program.

Archived Recording (Donald Trump)

And you will see how companies expand, companies return to our country, companies no longer leave our country because taxes and regulations are so burdensome.

Jim Tankersley

It is one of his top priorities. He comes into office. His team is starting to work on it. But it's not what they do first in Congress.

michsel barbaro

Mm-hmm.

Archived Recording (Donald Trump)

After all, we want a very large tax cut, but we can only do so if we keep our promise to lift and replace the disaster known as Obamacare.

Jim Tankersley

What they try first is to remove Obamacare.

Archived recording

Republicans are fighting this morning to adopt a new health plan. Currently, House Republicans have not enough votes to pass the replacement on to Obamacare.

Jim Tankersley

And in the spring of 2017, these efforts are not going well, as is Trump's tax plan.

[music]
michael barbaro

Why not?

Jim Tankersley

Well, the version of the tax bill that the Republicans are working on has some big opponents in the business world. And it is a real question of whether they can actually draft a law that will be brought to President Trump with enough people in Congress and with the business community, and he will sign it.

michael barbaro

Right. I remember that feeling like it was a dangerous moment for this young presidency. It is fighting to repeal the Affordable Care Act and to convince people to support its tax cuts.

Jim Tankersley

Right.

Archived recording 1

There is great disagreement in the Republican Party about what works in tax reform and healthcare.

Archived recording 2

Six months after his term in office, he has zero major legislative achievements.

Jim Tankersley

If there is one thing that you would have expected a republican president with republican majorities to be able to do, there is a big tax cut.

michael barbaro

Mm-hmm.

Jim Tankersley

And yes, we are in spring at that moment when it looks like it won't happen. And Fred Smith steps into the breach.

michael barbaro

And who is Fred Smith?

Jim Tankersley

Fred Smith is a former Marine who went to Yale and wrote a famous newspaper in a class that imagines a new type of society whose imagination is so wild that it gets a C on the newspaper.

michael barbaro

[LAUGHS]

Jim Tankersley

But he turns around and transfers what he outlined on paper to a company and builds it into FedEx –

Archived recording

America, you have a new airline. There is no first class, no meals, no films – in fact no passengers, just packages.

Jim Tankersley

– this huge, multinational shipping conglomerate and delivery company.

Archived recording

Federal Express, a brand new airline that only offers packages.

michael barbaro

And how exactly does FedEx founder Fred Smith interfere?

Jim Tankersley

Well, he's been an advocate of lower corporate tax rates for a long time. And now he sees the opportunity to push ahead with this plan he's been working on for years with President Trump, a real ally of the White House's corporate tax cuts. And he does something more than just drive the idea of ​​tax cuts into public discourse. He and his team at FedEx are actually writing their own plan –

michael barbaro

Impressive.

Jim Tankersley

– their own tax proposal.

michael barbaro

And what's in this Fred Smith plan?

Jim Tankersley

The main focus of the FedEx plan is a significant reduction in the corporate tax rate from 35 to 20 percent and some additional savings for companies so that they can immediately deduct their taxes on new investments. Two Things Fred Smith and a Many other executives say they will spur a renaissance in corporate investment in America.

Archived picture (Frederick Smith)

The fundamental problem with US tax law is that investments are punished.

Jim Tankersley

The argument is that the United States has been held back by lack of corporate investment in its economy –

Archived picture (Frederick Smith)

And ultimately, investment is what creates high-paying jobs.

Jim Tankersley

– Basically, companies did not spend money on which they were sitting, and they did not spend it on investments that economists consider to be very important for economic growth.

Archived picture (Frederick Smith)

If you make the United States a better place to invest, I think there is no doubt that a renaissance in capital investment, growth in G.D.P. and an increase in the income of our workers in the United States.

michael barbaro

What type of investment is Fred Smith talking about? What do we mean by capital investments?

Jim Tankersley

We are talking about plants. We are talking about equipment. FedEx is an airplane, a transportation hub, or new technology that enables parcels to be delivered or sorted faster. Something that can help you run your business more efficiently – that's the kind of thing that economists see as large, productive capital investments.

michael barbaro

I have it. And the reason that would help the rest of the economy is that someone has to build this facility, someone has to build this plane. It just ruffles.

Jim Tankersley

It is spreading for several reasons. On the one hand, there is a demand for the products in which investments are made, which have to be built and installed or flown or whatever. The other argument, however, is that the introduction of these new technologies helps workers do more.

Archived picture (Frederick Smith)

Investing is the only way to make non-university workers more productive and high-income. So you can hire six people to move a pile of dirt, or one person with a bulldozer. The difference is the bulldozer. The bulldozer driver makes a lot more money than the people with the shovels.

Jim Tankersley

And the argument was that companies didn't because their profits were taxed too heavily. And it was more profitable for them to invest in countries other than the United States because the tax rates in America were not competitive.

Archived picture (Frederick Smith)

It's like playing basketball. And at the end of the course, we play with a 12-foot basket, and everyone else we compete with around the world shoot with a 10-foot basket.

Jim Tankersley

Fred Smith makes this promise very clear and says that if we cut corporate tax rates, companies will invest in America again and the economy will grow faster. And that will help workers and everyone.

michael barbaro

Jim, how skeptical are Fred Smith's people when they think that large corporate tax cuts will result in large investments in the economy and growth in the United States?

Jim Tankersley

Well, much of Washington is not skeptical at all. You are driving this forward. The Trump administration, Republicans in Congress, and many economists who support tax reform are arguing in some ways that there will be more investment, much more, if you just lower the corporate tax rate. However, there is this divergent group, including many Democrats and liberal economists, who argue that companies have a lot of money. You don't need lower taxes to have a little more money on it. If you want to invest it, you can. It's right there on their balance sheets. And lowering taxes won't dramatically increase investment because it won't hold them back.

michael barbaro

And I'm curious, Jim, how much did FedEx pay in corporate taxes when Fred Smith made that argument?

Jim Tankersley

Throughout the time that FedEx makes this argument, FedEx, as stated in its financial records, pays an effective tax rate of around 33 percent or 34 percent, which is a lot. Taxes were paid in excess of $ 1.5 billion in 2017 alone.

michael barbaro

So this is a meaningful tax bill.

Jim Tankersley

It is a meaningful tax bill. And it's close to the highest corporate tax rate in America, 35 percent before the Trump tax cuts are passed.

michael barbaro

So what happens to Fred Smith's tax plan?

Jim Tankersley

The tax plan arrives in Washington, receives a warm welcome and feeds energy in a somewhat stalled process.

[music]
Archived recording

Brightening prospects for significant tax cuts, especially for businesses.

Jim Tankersley

And it helps to open the door again so that all tax reform advocates work together on a new bill.

Archived Recording (Donald Trump)

And as a Christmas present for all of our hardworking families, we hope Congress will pass massive tax cuts for the American people.

Jim Tankersley

The Republicans are getting back on track of the tax burden, which is due in particular to the fact that they do not completely abolish the law on affordable care. So now it is time. The business world is back in the game, they are hard on the lobby. The Trump administration is working out important details with congressional negotiators.

Archived recording

President Trump is traveling to Capitol Hill today to push ahead with tax reform that could be his first election victory.

Jim Tankersley

We are entering autumn. The house adopts a version of the bill.

Archived recording

The debate in the Senate is still ongoing. But this calculation seems to be gaining momentum.

Jim Tankersley

The Senate just passed a version of the law that no Democrats advocate. And then they put it together and the final proposal included the really big rate cut for businesses. Basically exactly as Fred Smith and FedEx suggested.

michael barbaro

Mm-hmm.

Jim Tankersley

And it includes a number of other investment incentives that FedEx also proposed.

michael barbaro

And then of course the bill goes.

Jim Tankersley

The bill is over. In my fever dreams, I vaguely remember the time I worked 20-hour days when the bill expired.

michael barbaro

[LAUGHS]

Jim Tankersley

And the president signed it by law.

Archived Recording (Donald Trump)

As you know, the corporate tax rate is reduced from 35 to 21 percent. That means more products are made in the United States. A lot will happen in the United States. We will bring our companies back. You have already come back. I think they had some confidence in me. They thought we could do it.

Jim Tankersley

This law includes individual tax cuts. It contains some other provisions. But at the heart of what it was sold on was the idea that it would revive economic growth in America. And that would be done by charging corporate investments. It is almost difficult to understand how often and loudly the Republicans and the President used these arguments to the voters. This is what American business and the American economy needed for more domestic investment.

michael barbaro

If this invoice is available, what is the FedEx tax rate? How much does it save?

Jim Tankersley

So the calculation goes. And FedEx will submit annual financial statements for the 2018 financial year at the end of the year. And it shows that instead of paying $ 1.5 billion like last year, it actually owed government money. It has a negative effective tax rate.

michael barbaro

What?

Jim Tankersley

Yes, negative 5 percent.

michael barbaro

So less than zero.

Jim Tankersley

Less than zero.

michael barbaro

Impressive. And how much of that $ 1.5 billion savings can be attributed to this tax burden?

Jim Tankersley

All of it. In the first two years after the tax law, we can count $ 1.6 billion.

michael barbaro

Hmm. So that's a pretty amazing number. On the other hand, we know that FedEx plans to use this money to reinvest in the American economy.

Jim Tankersley

This is the story FedEx told before the law was passed.

[music]

But the story that happened is different.

michael barbaro

We'll be right back.

So, Jim, what happened to all the money that FedEx saved through that tax cut and that helped shape it so decisively?

Jim Tankersley

FedEx had announced until the day before the bill was signed that they would use the money to increase investment. But they don't have that. Investments declined compared to the projections. And the next year it went down again.

michael barbaro

Hmm. What did FedEx do with these savings if they didn't invest in the things we all thought they would?

Jim Tankersley

Well, it largely rewarded its shareholders. It has increased dividends, which is the money it regularly pays to people who own its shares. And it bought back shares of that stock, which caused the stock prices to go up for the people who owned it. Well, to be clear, it also did some good things for its workers. It accelerated some increases. The workforce was enlarged. It made a big contribution to old-age provision. But the big winner was the shareholders. And that's a group that, by and large, if you look at who owns stocks in America that the very rich are targeting.

michael barbaro

So FedEx's promise to invest much of the tax relief savings in projects that would benefit ordinary workers across the economy went to the people who are, for the most part, already quite wealthy.

Jim Tankersley

In the short term, that seems very clear.

michael barbaro

Why do you think FedEx did that?

Jim Tankersley

I had a lot of questions for FedEx about how they spent their tax dollars. I tried to interview some of the executives over a couple of months. I never got an interview with a manager. I have sent very detailed questions, including one that is very similar to the one I just asked. Most of them remained unanswered. I would love to hear FedEx explain how it made the decisions it made with its tax cut.

michael barbaro

Hmm. Jim, how typical was that for companies that got these big savings from the tax cuts, didn't use them for investments, and instead used them to buy back shares or pay dividends?

Jim Tankersley

It was very typical. My colleagues and I did several analyzes to show how common this type of behavior was. And here are a few points of view. For one thing, companies increased share buybacks and dividends by about three times, while investing more after the tax cuts.

michael barbaro

Impressive.

Jim Tankersley

Second, investment has grown more slowly since President Trump's tax cuts than before President Trump's tax cuts.

michael barbaro

Which is another way of saying that the central demand for tax cuts, and how they would be used and how it would benefit the economy, simply did not materialize.

Jim Tankersley

It is not.

michael barbaro

Jim, if these companies would call you back and ask what they think about it, would there be an argument from a company like FedEx why the way it uses that money makes sense and benefits the American economy?

Jim Tankersley

Absolutely. The argument goes like this. First of all, rewarding shareholders is just another way to increase your investment. Because these shareholders will use this money to invest in various companies that use this money productively. The other argument is that it is simply too early to see the impact of tax cuts on investments. Basically, if you lower the tax rate, it doesn't change for companies that they get a lot of money today. Tomorrow's investments will pay off even more. Because you get the profits back, you pay less tax. So over time we would expect that more would not be invested immediately.

michael barbaro

Is that true? Are these companies' arguments about how they use this money true that it will ultimately really help the economy?

Jim Tankersley

I think there are mechanical truths that you can see for these arguments. But it is also true that all of this is very complicated and was sold as a very simple relationship. Lower taxes, increase investments. And just the fact that this doesn't happen immediately contradicts the arguments used to sell the invoice. I think that's really important here. Yes, investments in America may become a little more competitive over time because corporate marginal tax rates have been lowered. But that wasn't what President Trump was talking about at rallies. He spoke of the American economy growing by 3, 4, 5, 6 percent a year because all this flood of investment returned to the United States. And we just don't see it.

michael barbaro

Jim, why is it so important at the end of the day? I mean, these companies have successfully pushed for a tax cut. You got it. It is their money. In theory, can't they just do what they want, whatever that is?

Jim Tankersley

I think it is important to hold politicians and their supporters accountable for their promises, especially if those promises have real implications. The economy is not developing as well as we were promised when the tax cuts were passed. It doesn't grow that fast. Not that much investment is required. And if you believe the arguments put forward to sell this, it hurts the workers. Because slower growth prevents their incomes from rising as fast as they should. Real people suffer from the lack of additional growth that they promised they had and that they are not doing now. And then there's one last thing, it all comes at a price. It's not free to simply give money back to companies by reducing their tax burdens. Regardless of what the proponents said, namely that the law would pay for itself – the additional growth – we actually see a massive effect of hundreds of billions of dollars a year to increase the federal budget deficit. And last year, that deficit was almost $ 1 trillion.

michael barbaro

And how big is the role that tax cuts play in this emerging deficit?

Jim Tankersley

It is the main reason for additional deficits that go beyond what we had before the law was passed.

[music]
michael barbaro

Jim, thank you very much.

Jim Tankersley

Thank you very much.

michael barbaro

In a statement, FedEx criticized the Times' reporting on tax savings and investments, but did not give any specific factual objections. In the statement, company founder and C.E.O., Fred Smith, called on The Times editor for a public debate on federal tax policy in Washington. In response, a Times spokeswoman dismissed the request as a stunt and quote, "Effort to distract from the results of our story."

[music]

We'll be right back.

You still need to know the following today:

archived recording (mike pompeo)

The establishment of Israeli civilian settlements in the West Bank is not per se contrary to international law.

michael barbaro

On Monday, the Trump administration said the US did not consider Israeli settlements in the West Bank to be a violation of international law, which would result in a four-decade reversal of American policy.

archived recording (mike pompeo)

We do not discuss or anticipate the West Bank's final status. It is up to the Israelis and the Palestinians.

michael barbaro

The Times reports that the new policy would likely end all peace talks between Israelis and Palestinians by legitimizing Israeli settlements on the West Bank territory that Palestinians have called for a future state. And –

Archived recording

[GUNSHOTS]

michael barbaro

– In a closely watched showdown, the Hong Kong police surrounded nearly 500 student protesters on a college campus and threatened them with gunfire and tear gas if they did not surrender. The standoff has made the college campus Hong Kong's newest battleground for democracy and the influence of China. The students there used homemade fire bombs, slingshots and bows and arrows to defend themselves against the police, but now appear to have been cornered.

Archived recording

[YELLING]

michael barbaro

That was & # 39; s for "The Daily". I am Michael Barbaro. Until tomorrow.