After Trump, the deluge

According to a recent New York Times story, in 2017 Fedex owed $1.5 billion in taxes; after the Trump tax cut, its 2018 tax bill was $0. FedEx CEO Frederick Smith lobbied hard for the tax cut from 35 to 21 percent, claiming that “If you make the United States a better place to invest, there is no question in my mind that we would see a renaissance of capital investment.” The law would allow corporations to deduct the full cost of such investment from their tax bill. But whereas FedEx paid a 34 percent tax in 2017, they paid 0 percent in 2018, somewhat less than 21 percent How did they manage it? By “capital investment”? According to the Times,

As for capital investments, the company spent less in the 2018 fiscal year than it had projected in December 2017, before the tax law passed. It spent even less in 2019. Much of its savings have gone to reward shareholders: FedEx spent more than $2 billion on stock buybacks and dividend increases in the 2019 fiscal year, up from $1.6 billion in 2018, and more than double the amount the company spent on buybacks and dividends in fiscal year 2017.

In other words, FedEx was busier using their tax cuts to increase its own equity from stock buybacks and using much of the rest in passing out dividends to those who still held stock. FedEx is defending itself with a lot of double-talk, but it is a common refrain to explain why in 2018 more than $100 billion more has been saved in taxes than was predicted, which of course only increases the federal deficit even more. Most corporations never did pay the top tax rate to begin with, and today companies in the S&P 500 are averaging a little over half that rate. But three dozen major corporations like FedEx either pay no taxes or were actually “owed” refunds.

While capital investment did rise significantly in the first two quarters since the tax cut went into effect, over the year since then not only has investment decreased to levels below that from before the tax cut was passed, but GDP growth has slowed or fallen. According to the Times, rationalizations for this by the “experts” runs the gamut from trade war uncertainties to the fact that “high” taxes never had anything to do with investment in the first place. This was certainly true of FedEx, whose investment plan was to actually spend more money, not less, before the tax cut was passed. Why? Because it was the best way to reduce its tax liability; after the tax cuts went into effect, there was less incentive to spend more on investment. Remember that Smith talked about “capital” investments; those investments decreased by over $400 million from the company’s original “projections” before the tax cuts. The Times also pointed out that corporations like FedEx that have unpaid tax liabilities benefited by the lower tax rate being essentially retroactive. 

FedEx did use some of its infusion of extra cash for more hiring and raising hourly wages initially, although FedEx customers probably did not notice an improvement in service. But since then, due to market “confusion” over Trump’s trade wars, FedEx, like other corporations, are back to “downsizing.” On the website TheLayoff.com, current and former FedEx employees are sharing rumors about potentially major layoffs in 2020, particularly in the company’s SmartPost division, as well as major cutbacks in various benefits packages.

What has been “lost” in the discussion about these tax cuts is their long-term effects on the federal budget. The budget deficit is projected to increase by more than $200 billion this year and surpass $1 trillion the next two years. Now, people will point out that there were trillion dollar deficits during Barack Obama’s first term, but these deficits were incurred by spending to offset the effects of the “Great Recession.” The irony of this was that in the last years of the Clinton administration the federal budget was actually in surplus, and the Bush administration used it as an excuse not to eventually erase the federal deficit, but to enact a major tax cut that immediately led not to “dramatic” growth but were at the time record deficits, and the “official” numbers did not including “off the books” spending on the Iraq War. The federal budget deficit fell to $442 billion in 2015; the 2019 deficit is projected to be $984 billion, and over $1.1 trillion in 2020.

Remember that the economy is still supposed to be in a “robust” growth phase. What will happen when the country goes into another “great” recession or worse? The federal budget deficit will already be in “disaster” mode thanks to the Trump tax cut, and who will be expected to be the beneficiary of “relief” if there is any? Well, of course the corporations and banks will be crying they want “more, more, more.” And we the working people will be the ones suffering because, well, they never really mattered in Trump’s world to begin with. It will already be enough to hold back the deluge of white nationalism that Trump has unleashed on the country, and the economic disaster blame game--for which working class whites will pile their wrath on minorities, immigrants and the "left"--will only become worse.