The Republican tax bill helped U.S. banks gain an extra $28 billion in profits last year, according to new data released Thursday by the Federal Deposit Insurance Corporation (FDIC).
In total, the nation’s 5,406 federally insured banks took in $236.7 billion in 2018, a 44 percent increase of $72.4 billion from 2017. Without the Republican tax bill, the FDIC estimates 2018 profits would have been $207.9 billion.
“Once again, the banking industry reported a strong quarter. Net income improved on higher net operating revenue and a lower effective tax rate,” FDIC Chairman Jelena McWilliams said in a statement. “The current economic expansion is the second-largest on record, and the nation’s banks are stronger as a result.”
President Donald Trump and congressional Republicans marketed their bill, the Tax Cuts and Jobs Act, as a gigantic boon for the middle class — even promising the average family would receive a $4,000 pay raise. In spite of the economic boom in the corporate and banking sectors, the American middle class has been largely unaffected by the measure, which passed in December of 2017. Meanwhile, corporations and big banks are rolling in cash.
Hourly wages have basically remained stagnant while corporate profits have skyrocketed. While the U.S. economy added over 300,000 jobs in January, workers got what amassed to just a 3-cent hourly raise.
“Donald Trump said he would tax Wall Street and stop them from ‘getting away with murder.’ It was all a con,” Seth Hanlon, senior fellow at the Center for American Progress, told ThinkProgress in an email. “His tax plan shoveled tens of billions of dollars to Wall Street and the financial sector. At the same time, he’s rolled back the reforms to protect consumers and prevent another financial crisis. There is no clearer example of how he sold out American workers.” (ThinkProgress is an editorially independent project of the Center for American Progress Action Fund.)
The boom those in the financial industry talk about is largely attributed to the massive tax cut Republicans gifted corporations with their bill. Under the new tax law, the corporate income tax rate was slashed from 35 percent to just 21 percent, helping boost federal bank profits. Some big banks, however, pay an even lower rate. After the tax bill’s passage, JP Morgan Chase announced it expected to pay a tax rate of just 19 percent, a cut of nearly one third of what they paid the year before. Similarly, PNC Financial announced it will likely pay a tax rate of just 17 percent.
Because of the corporate tax cut, massive corporations like Amazon, which is valued at nearly $800 billion, will pay $0 in federal taxes this year. In fact, the company is expecting a federal refund of nearly $129 billion. This essentially puts Amazon at a federal income tax rate of -1 percent this year, after paying a federal rate of more than 11 percent from 2011 to 2016. This is the second year in a row that Amazon has not paid any federal taxes. The Institute on Taxation and Economic Policy (ITEP) suggests that this is due to a combination of the corporate tax cut and a loophole that allows corporations to avoid paying state and federal taxes on roughly half their income
“In fact, the Trump Administration and its congressional allies included lavish new giveaways such as immediate expensing of capital investments,” ITEP senior fellow Matthew Gardner wrote. “Multiple analysts scored the tax law as a huge revenue loser, giving away far more to big corporations in rate cuts than it takes in loophole-closers.”
The GOP heralded the passage of its tax bill as a huge win for workers, who would see their higher wages now that corporations have more freed up cash that would “trickle down” to employees. What has happened instead is a massive increase in stock buybacks for corporate shareholders. For the first three quarters of 2018, buybacks reached $583.4 billion, up 52.6 percent from 2017. The issue of stock buybacks has become so concerning that Sen. Marco Rubio (R-FL), who voted emphatically for the tax bill in 2017, is now proposing a fix that would aggressively tax buybacks.
Big banks followed suit, with 21 of the nation’s largest banks spending upwards of $152 billion on buybacks and dividends in 2018.