February 4, 2020
Federal Policy Director
February 4, 2020
If President Trump puts forth another tax proposal this year, as he is hinting, it will be his third. The second round, already costing the U.S. Treasury billions, was implemented largely out of the public’s view.
Administration officials refer to the possibility of another tax bill as “tax cuts 2.0,” and they have publicly tossed around ideas for what could be in such a plan almost since the enactment of the 2017 law. Previous ideas that have been floated include everything from providing a bigger break for capital gains that mostly flow to the rich to an ill-advised reduction in the payroll tax that funds Social Security.
All of this distracts from the failure of the first tax cut and the fact that the administration is already providing a second one to corporations without any involvement from Congress. Investigative reporting late last year by The New York Times that is now backed up by the Congressional Budget Office shows that the Trump administration unilaterally provided a second tax cut to corporations by writing rules that significantly weaken the few provisions in the 2017 Trump-GOP tax law that were supposed to restrict offshore tax dodging for corporations.
One of those provisions is the Global Intangible Low Taxed Income (GILTI), which is a tax on offshore profits of American corporations. GILTI was already destined to be ineffective because it was drafted to apply at only half the 21 percent rate imposed on domestic profits and exempt many profits altogether.
Another provision is the Base Erosion and Anti-Abuse Tax (BEAT) which taxes certain payments, like interest payments between “related” corporations that are really just parts of the same company. These payments are often used to shift profits abroad.
Almost before the ink was dry on the hastily drafted tax law, corporations lined up to lobby the Treasury Department, which was tasked with writing regulations to implement these and other provisions.
The Times explains that the “blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.”
Treasury gave the companies what they wanted—exceptions to the GILTI and BEAT provisions that sometimes go beyond what would be allowed by any reasonable interpretation of the law itself, creating one of the exceptions “out of whole cloth” as one law professor put it.
The Times article says that officials with Congress’s revenue estimator, the Joint Committee on Taxation, expect that the rules related to the BEAT alone would reduce revenue by $50 billion compared to what was expected when the law was enacted.
Last week, the Congressional Budget Office’s “Budget and Economic Outlook” confirmed that regulatory changes related to the 2017 law are significantly reducing projected tax revenue.
CBO explains that its report includes “revisions to projected revenues related to certain provisions of the 2017 tax act, which reduced projected receipts for the 2020–2029 period by roughly $110 billion (or 3.2 percent), on net.”
The report explains, “Most significantly, CBO reduced its projection of the amount of income subject to tax under certain provisions related to international business activities. Those changes, which lowered corporate receipts, reflect the implementation of the law (including regulations announced by the Internal Revenue Service over the past year)” along with new data and updated information.
At a hearing before the House Budget Committee, CBO’s director Phillip Swagel confirmed this in response to a question from Rep. Lloyd Doggett, who noted that Treasury is not done writing regulations to implement the law and that the ultimate impact on revenue could be far worse. As Doggett points out, ITEP found that 91 profitable Fortune 500 corporations paid no federal income tax in 2018, the first year that the new tax law was in effect.
So, whatever the President proposes next, let’s be clear about one thing. His “second” round of tax cuts are already underway, and they are being implemented without approval from Congress and out of view of the public.