Great economy may not be enough
Apple CEO Tim Cook joined Nevada Gov. Brian Sandoval and Reno Mayor Hillary Schieve on Jan. 17 for groundbreaking on a new $4 million shipping and receiving warehouse in downtown Reno.
The ceremony came as Apple was announcing plans to hire 20,000 more workers and invest an additional $350 billion in the U.S. economy over the next five years, resulting from passage of the Tax Cuts and Jobs Act of 2017. Apple also announced a $2,500 employee bonus in company stock and that it would pay $38 billion in taxes on repatriated earnings on cash the company held overseas.
Apple was responding to the corporate tax cut from 35% to 21% contained in the tax bill and a 15.5% tax rate on profits earned overseas. Apple was one of an ever- growing list of more than 125 major employers announcing significant tax-cut induced wage increases and employee bonuses.
On the day following the bill’s signing by President Trump, AT&T and Comcast said they would pay a $1,000 bonus to most U.S. employees , more than 300,000 people. Well Fargo & Co. said it would increase its starting pay to $15 an hour. Wal-Mart announced bonuses of up to $1,000 for its employees, raising minimum starting wages to $11 an hour from $9. Fiat Chrysler reported relocation of a heavy-duty truck factory from Mexico to Michigan, creating 2,500 American jobs, and awarded $2,000 in bonuses for workers. Verizon, Starbucks, Boeing and Disney are among other corporate names making similar employee pay increase and bonus announcements.
The tax cut for individuals will result in Treasury Department changes to tax withholding rates by February 15. Workers will receive more take-home pay . The U.S. government estimates more than 90% of workers will have bigger paychecks under the withholding changes.
Democrats in Congress chose to “resist” the tax bill, without offering an alternative. They linked the legislation to the personal unpopularity of President Trump. House Minority Leader Nancy Pelosi called the tax overhaul “the worst bill in the history of the United States Congress”. Senate Minority Leader Chuck Schumer said it “will be an anchor around the ankles of every Republican”.
The 35 percent corporate tax rate had not changed in 31 years, despite recognition by both Democrats and Republicans that the United States was increasingly uncompetitive with other countries on corporate taxes. Both parties acknowledged that the U.S. had the highest statutory tax rate among the Group of 20 (G20 nations).
Interest in reducing the 35 percent federal corporate tax rate has built over the years. In 2007, Democrat House Ways and Means Chairman Charles Rangel introduced legislation to reduce the top statutory rate to 30.5% . In his January, 2011 State-of-the Union address, President Obama urged a major cut in the corporate rate. In 2012, Obama proposed a top corporate tax of 28 percent, and continued that call in each succeeding year of his presidency.
President Obama could have made all this happen, but refused to negotiate seriously with a GOP Congress. Meanwhile, c ompanies left the U.S. through the device of “corporate inversions” so as to be taxed at lower foreign rates, eroding the U.S. tax base. Democrats made the calculation on the tax bill that the best politics were to “resist Trump”. Now, no Democrat can share in tax reform’s political dividends.
Democrats are counting on President Trump’s erratic personal behavior and his loathing among their base to overcome good economic news. That includes a business revival—a stock market soaring, a 17 year low in unemployment , a 17 year high in business confidence, and 3 percent GDP growth.
Still, Republicans should be wary. There is nothing “normal” about Trump’s presidency—his tweets include nonsensical attacks, childlike taunts and untruths.
Whatever the state of the economy, voters in 2018 may still chose to punish “the party of Trump.”
Jim Hartman is a Genoa resident