The corporate news media continues to underestimate Donald Trump when it comes to his ability to use the international establishment as a foil to stroke his base. This week there was much pundit handwringing over Trump trashing the global G7 trading and security structure that has framed our post-World War II reality. He seems to be looking for a new realpolitik triangulation where strong men in China, Russia and the U.S. run the world.
It’s pretty clear that there are tens of millions of Americans, the same ones blind to Russia’s efforts to manipulate the 2016 election, who are thrilled to see Trump thumb his nose at Euro-norms that belong to “our oldest allies.”
They just don’t see how all the internationalist architecture — in which the likes of Henry Kissinger are so invested — has actually done anything to improve U.S. national standing or, more importantly, their own personal economic well-being. It did not shield us from 9/11, and it did not mean we could avoid having our troops in harm’s way all around the world.
During the 2016 election season, I had two interactions with Donald Trump while I was working for CBS MoneyWatch.
On one occasion, it was a phone interview about the human wreckage — in terms of failed small businesses — that Trump had left behind in the wake of his flame-out in Atlantic City, which he kind of just shrugged off.
The other occasion was a question-and-answer exchange we had at Trump Tower at his September 2015 press conference about his corporate tax-cut plan proposal, which called for dramatically cutting the corporate tax rate to induce U.S. multinationals to repatriate at least $2 trillion they had stashed off-shore.
He was right to focus on it.
The amassing of this huge amount of cash offshore had all kinds of negative collateral consequences for America’s Main Street economy. Rather than touch their foreign cash stockpiles, big companies like Apple borrowed billions at home, which further contracted the access to capital for small and mid-size U.S. companies. It also created an incentive for U.S. multinationals to put their “stranded capital” to work by buying up overseas companies.
In essence, the American business landscape was subject to the same tsunami of wealth concentration and widening income disparity that U.S. families have continued to experience, regardless of which political party is in power.
By 2014, several years after the Great Recession was supposedly over, the Washington Post was reporting that more small American businesses were closing than opening. That year, the number of new businesses started was just 425,835, “well below the 500,000 to 600,000 new companies that were started in the U.S. every year from the late 1970s to the mid-2000s,” according to CNN.
“There’s been a long-term decline in entrepreneurship,” Arnobio Morelix, a senior research analyst at the Kauffman Foundation, told CNN.
At the 2015 Trump press conference, I asked the future president how his plan would be any different from George W. Bush’s 2004 multinational corporate tax holiday that dropped rates to 5.25 percent.
Congress enacted what it had called the Homeland Investment Act, directing that the corporations getting the massive corporate tax-cut windfall hire more employees, increase spending on research and development, and boost capital spending to upgrade their facilities.
None of that happened. The money went to CEO bonuses and stock buybacks. In an October 2011 report, the U.S. Senate Permanent Subcommittee on Investigations found that the country actually lost jobs, there was no increase in research-and-development spending, offshoring of profits increased and the whole program actually cost the U.S. Treasury $3.3 billion.
So I asked Trump to connect the dots between his proposal to cut corporate taxes and bringing back to work the millions of idle American workers, who he often talked about during the campaign when he raised the country’s historically low workforce participation rate. (Now, a year and a half into Trump’s term, the percentage of Americans in the workforce has actually continued to decline.)
Trump raised the importance of stopping corporate inversions, the practice by which U.S. companies change their national identity to more friendly tax authorities overseas. Trump believed a major corporate tax cut would encourage corporations to give the U.S. a second look, while bringing a lot of money back into the economy for business and plant expansion.
“They think it is $2.5 trillion," Trump said. "I think it is much more than that. I actually think it is going to be more money than that; and boy, if it is, we have hit pay-dirt.”
I followed up by asking him if he would consider using the tax cuts as leverage to require that corporations start paying interns and end the widespread practice of getting millions of kids to work for free.
He punted.“When you get the money coming back in, beyond-tremendous things happen,” Trump said.
Six months ago, Trump largely got his way with the GOP’s $1.5 trillion corporate tax cut. Now the preliminary results are in.
For the workers at the Wisconsin-based motorcycle maker, Harley Davidson, things are hardly “tremendous.” The ink was barely dry on their tax-rate cut — from 35 percent to 21 percent — when the company announced the layoff of 350 workers here in the U.S. At the same time, Harley Davidson raised its dividend, executed a stock buyback plan and went ahead with plans to build a plant in Thailand.
In February, Robert Reich, the labor secretary under Bill Clinton, wrote that his research showed that what had happened in 2004, with Bush’s tax holiday, was happening all over again in 2018:
The results are coming in, and guess what? Almost all the extra money is going into stock buybacks. Since the tax cut became law, buybacks have surged to $88.6 billion. That’s more than double the amount of buybacks over the same period last year, according to data provided by Birinyi Associates.
Compare this with the paltry $2.5 billion worth of employee bonuses corporations say that they’ll dispense in response to the tax law, and you see the bonuses for what they are: a small fig leaf to disguise the big buybacks.
As Reich noted, stock buybacks divert money from hiring, buying new equipment or boosting research and development. Yet CEOs love buybacks because most CEO pay is now in shares of stock and stock options, rather than cash. So when share prices go up, executives reap a bonanza.
Last month, Frank Clemente of Americans for Tax Fairness testified before Congress with the benefit of having three more months of data on the consequences of the Trump-GOP tax cut.
Total tax cuts for 107 Fortune 500 corporations in 2018 is estimated at $72 billion so far. Fortune 500 corporations are getting 12 times more in tax cuts than workers are getting in pay hikes ($6 billion). Corporations are mostly sharing their huge tax cuts with wealthy CEOs and stockholders.
Three hundred and three corporations have announced a total of $456 billion in stock buybacks since the tax law passed Congress in December. They are spending 66 times more to buy back stock that mostly benefits the already wealthy than they have promised to workers in pay hikes ($6.9 billion).
In reality, this country would have been better off forgiving the $1.48 trillion in student loan debt held by more than 44 million Americans, rather than going through with the $1.5 trillion tax cut for corporations, where the benefits are concentrated at the very top.
According to Student Loan Hero’s website, the average student who graduated college with the class of 2017 has close to $40,000 in student-loan debt, up 6 percent from the year before. There’s tremendous evidence this collective debt is holding back not just one generation, but the entire nation.
A report released earlier this year by the Levy Economic Institute at Bard College, entitled “The Macroeconomic Effects of Student Debt Cancellation,” confirms that the current level of college debt “hurts the US economy in a variety of ways, holding back everything from small business formation to new home buying, and even marriage and reproduction.”
“The policy of debt cancellation could boost real GDP by an average of $86 billion to $108 billion per year,” the researchers wrote. "Over the 10-year forecast, the policy generates between $861 billion and $1,083 billion in real GDP (2016 dollars).”
It might be instructive for the political class to check out which states are suffering the worst, given the way we turned our adult children into debt slaves. Ohio, Pennsylvania, West Virginia, New Hampshire, Michigan, Iowa and Indiana are seven of the top 10.
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