President Donald Trump’s tax plan fulfills a request the GOP establishment has long wanted: a significantly lowered corporate tax rate.
Under the joint GOP-Trump tax plan, the corporate tax rate will be lowered from 35 percent to 20 percent. Supporters of this measure argue that a low corporate tax rate is needed to make U.S. companies more competitive across the globe.
In speeches pitching his tax plan to the country, Trump claims the U.S. has the highest corporate tax rate in the world, even though the truth is more complicated than that. He and other Republicans also argue that a lower corporate tax rate would create more jobs because corporations will use the money that is no longer tied up in taxes to create more jobs and higher wages. However, multiple studies have shown that this won’t be the case.
According to new analysis from Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, the only group significantly benefiting from a lowered corporate tax rate are wealthy foreign investors.
Analysis by Rosenthal finds that roughly 35 percent of U.S. corporate stock is owned by foreign investors. Slashing the corporate tax rate to 20 percent would translate to a tax cut for these investors worth $70 billion dollars, a cut three times the tax break that households in the middle income quintile would get under Trump’s tax plan.
“U.S. tax reform may inevitably allow incidental benefits to foreigners. But the windfall to foreigners from lowering U.S. corporate income tax rates from 35 percent to 20 percent is exceptionally large,” Rosenthal wrote. “As estimated here, a lower corporate income tax rate would benefit foreign investors by $70 billion in the first year alone […] would benefit middle-income U.S. households by only $23 billion in the first year.”
Rosenthal’s analysis that wealthy individuals will get some of the biggest tax cuts from Trump’s “middle class” tax plan backs up preliminary analysis from the Tax Policy Center that estimates 80 percent of the tax cuts would go the top 1 percent.
The White House has attempted to discredit the Tax Policy Center’s study of the overall tax plan by claiming it is too early to make any estimates because the tax writing committees in Congress still have to fill in many key details. The administration, however, does not seem to believe it is too early to make sweeping claims about the tax plan without providing substantial measures or numbers to back them up.
Economists have long argued that shareholders bear the largest burden of corporate tax cuts — in other words, they receive the most benefits when these taxes are cut. The Trump administration, however, is estimating that these tax cuts will help contribute to what he calls the “biggest tax cut in history,” even going so far as to say that the average American household would see a $4,000 dollar boost in income. This estimate, however, assumes these corporations would put their newly freed up cash back into the hands of workers in the form of higher wages, rather than invest in automation or return that money back to investors in the form of stock dividends, which many economists argue will likely happen.