Republicans predict voters will like tax bill once they see benefits
Several companies greeted the passage of the Tax Cuts and Jobs Act Wednesday with statements applauding Republicans in Congress and promising bonuses, higher wages, and increased investment due to the slashing of the corporate tax rate, but experts say it may take more than that to shake the perception that the bill favors the wealthy and big businesses.
“Congress, working closely with the President, took a monumental step to bring taxes paid by U.S. businesses in line with the rest of the industrialized world,” Randall Stephenson, AT&T chairman and CEO, said in a statement.
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“This tax reform will drive economic growth and create good-paying jobs,” he added. “In fact, we will increase our U.S. investment and pay a special bonus to our U.S. employees.”
Directly tying its plans to the passage of the tax bill, the telecommunications giant announced it will invest an additional $1 billion in the U.S. in 2018 and give a $1,000 bonus to more than 200,000 employees.
Comcast made a similar pledge of $1,000 bonuses and $50 billion in investment, citing the tax reform legislation and the Federal Communications Commission’s rollback of net neutrality regulations on the broadband industry.
Also on Wednesday, Boeing announced $300 million in “employee-related and charitable investment.” Wells Fargo and Fifth Third Bancorp are raising the minimum wage for their employees to $15 per hour.
All of this is happening before any of the bill’s provisions actually take effect. In 2018, the corporate tax rate will drop from 35 percent to 21 percent. Personal income tax rates for most workers will fall by a much smaller margin, but Republicans say the new tax brackets will be reflected in paychecks starting in February.
President Donald Trump and congressional Republicans are already celebrating the announcements by AT&T and others as validation of their claims that reducing corporate taxes will trickle down to the average worker. House Speaker Paul Ryan, R-Wis., told reporters he was “heartened” by the news.
“I was pleased to see America’s corporations standing up almost immediately and saying employees are going to benefit,” Senate Majority Leader Mitch McConnell, R-Ky., said Thursday.
“The Massive Tax Cuts, which the Fake News Media is desperate to write badly about so as to please their Democrat bosses, will soon be kicking in and will speak for themselves,” President Trump tweeted. “Companies are already making big payments to workers.”
Democrats and others opposed to the tax bill are highly skeptical of the corporations’ sudden generosity.
Harry Stein, a policy advisor to Sen. Chris Van Hollen, D-Md., noted that AT&T spending an additional $1 billion in 2018 would just mean it is spending the same amount it did in 2016.
“This is corporate America trying to convince you that their naked greed is charity; that their gluttony is kindness, and that they didn't demand this $1.5 trillion wealth transfer that you, sick kids and seniors are footing the bill for,” tweeted MSNBC host Joy Ann Reid.
Experts cautioned against reading too much into the immediate reactions of a handful of businesses to the bill’s passage.
“Economists are very, very, very hesitant to base our conclusions on anecdotal accounts,” said John Deskins, director of the West Virginia University Bureau of Business and Economic Research.
Deskins expects cutting corporate taxes will spur some additional investment, but it will not be clear for a while how much impact it actually has.
“The amount of investment that comes as a result of this package needs to be judged carefully on the basis of evidence over several years,” he said.
Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, said it is important to look beyond the headlines to put these bonuses in context. An ITEP study found AT&T paid an average effective tax rate of 8.1 percent from 2008 through 2015, for example.
“There really weren’t any impediments, in the tax system or otherwise, to AT&T paying its employees fairly in the first place,” Gardner said.
These corporations’ gains in profits due to the tax cuts are projected to dwarf any of the bonus payouts they are making to their employees.
“In the long run, it’s entirely possible some of the corporate tax cuts will pass through to wage earners,” Gardner said. “In the short run, it’s hard to see this as anything other than a PR move.”
Still, Republicans expect headlines like these to help turn the tide of public opinion in the months ahead as new capital investments are announced and workers’ take-home pay rises. In interviews Wednesday, many lawmakers predicted voters will be much happier with the legislation in February.
“The proof is in the pudding,” said Rep. Diane Black, R-Tenn. “Come February, when they get those paychecks and they see more money in their paychecks, they’ll then understand we did what we said we were going to do.”
“Nothing like having more cash in your pocket and they will be reminded of that every paycheck, every month,” said Rep. Jodey Arrington, R-Texas.
The Tax Policy Center estimates 80 percent of households will pay lower federal taxes next year as a result of this bill, and five percent will face a tax increase. A larger chunk of the benefits will go to middle-class families than under previous iterations of the bill, but the package still provides more to top earners and corporations.
“I think the public will like keeping more of their hard-earned money, and I think they’ll like the fact that compared to where this process started, it’s much more aimed at the average guy,” said Rep. Glenn Grothman, R-Wis.
Democrats on Capitol Hill were unfazed by the notion that middle-class workers will, at least in the short-term, see tangible and immediate benefits from these changes to the tax code.
“It’s a great Christmas gift for Donald Trump’s family, his billionaire buddies, and real estate moguls. I think the middle class gets mostly the gift-wrapping,” Rep. Lloyd Doggett, D-Texas, said.
Democratic lawmakers emphasized that, as written, most of the personal tax breaks that directly affect the middle class sunset in 2025, while the corporate cuts are permanent. Rep. David Cicilline, D-R.I., called it “a bait-and-switch.”
“You start off with a couple of crumbs but then you get whacked with higher taxes at the end of this bill,” he said. “So people understand that…the American people are much smarter than they’re giving them credit for. They already see through it, which is why its wildly unpopular with the vast majority of the American people.”
“The small business breaks snap back and go away in eight years, yet the big corporations get to keep their tax breaks,” said Rep. Kurt Schrader, D-Ore. “Where’s the fairness in that? Again, frankly, the wealthy do better than Joe average.”
Republicans maintained that a future Congress will extend the tax cuts, as has happened with similar provisions in the past, but doing so will require them to accept even larger deficits or find spending cuts to offset the lost revenue.
“They’re putting off making the tough decisions now, trying to goad people in the future into making sure these things continue and add even more to the credit card our kids are going to pay,” Schrader said.
Democratic strategist Craig Varoga suggested that even after workers get a small boost in after-tax income, critics still have plenty of ammunition to attack the bill as a handout to wealthy GOP donors.
“The Republican politicians in Congress know this bill is historically unpopular, but they passed it to make their donors and super PACs fat and happy going into the 2018 elections,” he said. “They’re using the tax code to fund their negative ads. Smart Democratic campaigns should hammer that point home every day of the election next year.”
However, Republican strategist Matt Mackowiak warned that Democrats are taking a risk if they continue to harp on a lack of benefits for the middle class while the middle class is benefiting.
“The demagoguery on the Democratic side has reached record levels in the last two weeks,” he said. “They’ve been predicting the end of the world essentially. When the world doesn’t end, it makes them look ridiculous.”
Capri Cafaro, a former Ohio state senator and executive-in-residence at the American University School of Public Affairs, said Democrats have been more successful in branding the tax bill than Republicans, but corporations explicitly passing savings on to workers could aid the GOP in reversing that.
“Certainly that is helpful as far as their message is concerned,” she said. “The real issue is whether Republicans can take the message back from the Democrats.”
Polls have indicated many people who will receive a tax cut do not believe they will, and that likely will change once the new tax tables go into effect. However, it will not necessarily alter their opinions of the larger tax reform package because they are getting smaller breaks than businesses and rich executives.
“The fact that the corporate tax cuts are permanent and the individual tax cuts sunset, I think there is a story to be told about that about what priorities the Republican Congress has,” Cafaro said.
She likened the current paradigm to an inverse of 2010, when Democrats were forced to defend the unpopular Affordable Care Act, a poorly-understood bill passed just before Christmas on a party-line vote that the Republicans had successfully vilified. Democrats will need to refine their message on taxes to have a shot at replicating the wave that handed Republicans control of the House.
“They have to contrast their values and plans with that of the Republicans,” she said, “so it’s not enough to just be against the tax plan… Democrats also must provide an alternative.”
If wages and investment go up and the economy surges between now and November 2018, the bet Republicans have placed on this legislation will have paid off, according to Mackowiak.
“It could kind of level the playing field for the midterms,” he said.
Even then, Gardner believes Democrats will have the data to make a convincing case that cutting taxes for the middle class was little more than an afterthought for Republicans.
“There’s nothing that can happen in the next few weeks, the next few months, the next few years that should change the public’s perception of this as a bill primarily for the best-off and corporations,” he said.