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FORTUNE.COM // DECEMBER 2019
Tax Fairness, a left-leaning advocacy group—
just 10 companies account for 37%. Just one
company, Apple, accounts for 16%. Mega-
buybacks are a big phenomenon, it seems, but
not a broad one.
The corporate tax overhaul was overhyped
by its proponents. It didn’t work miracles in
its first year. Its most important effects will be
long-term, and it should make U.S. business
more competitive.
That was the good stuff, and it was very
good. From Election Day 2016 to Jan. 26, 2018,
almost exactly a year after Trump’s inaugura-
tion, stocks roared; the S&P rose at a 27%
compound annual growth rate. Corporate
profits, already high, kept climbing—up 8% in
constant dollars from first quarter 2017 to first
quarter 2018. Trump’s first year looked like a
home run for business.for years that the U.S. corporate tax system badly needed fixing.
The U.S. had the highest corporate tax rate of any developed econ-
omy, 35%, though deductions and credits meant few companies
paid that rate. The U.S. was also one of the few major countries
that still taxed a company’s income worldwide if it was brought
back home, giving companies a strong incentive to leave non-U.S.
earnings outside the U.S. One result: an estimated $2.6 trillion of
assets parked elsewhere. Another result was a rash of corporate
“inversions” in which U.S. companies moved their headquarters
overseas to escape their tax disadvantage in global business.
The TCJA fixed those problems. It lowered the corporate tax rate
to 21% and adopted the so-called territorial system used by most
developed countries, in which companies pay local taxes in each
country where they operate. Those combined changes put the U.S.
in line with other major economies. The law thus eliminated the
incentive for inversions, and it also imposed specific penalties on
inversions for 10 years after enactment. No significant inversions
have occurred since, though Treasury Department rules adopted
during the Obama administration in 2015 and 2016 had pretty
well stopped them already.
Most of the partisan sniping over corporate taxes came not
before the law was enacted, but after. What would companies do
with all that money they weren’t paying in taxes and all the money
they could now bring home tax-free? Trump’s Council of Economic
Advisers argued that much of it would go to workers as compa-
nies invested a portion of that new money in capital, which makes
workers more productive and leads to higher pay. Bottom line, said
the CEA, a corporate rate reduction to 20% (not the 21% actually
enacted) would eventually increase average household income by
$4,000 to $9,000 a year.
It was a long-term projection, but the White House rarely
mentioned the “long-term” part, implying the pay raise was right
around the corner. It wasn’t. An appraisal of the TCJA by the
Congressional Research Service found “no indication of a surge
in wages in 2018 either compared to history or relative to GDP
growth.” Expecting a jump in wages would have been unrealistic
anyway. Economists across the political spectrum agree that the
TCJA’s effects on employment and pay will take years to play out.
The repatriation story was similarly dissatisfying, again because
of inflated expectations. The TCJA sparked a strong surge in
repatriation, as predicted, but there’s little or no evidence that it
noticeably increased business investment or went directly to work-
ers. Companies did spend much of it buying back stock, however,
igniting charges of corporate greed. But none of this should have
been surprising. A repatriation tax holiday in 2004 produced much
the same results. In addition, sending money back to sharehold-
ers is no sin; it’s their money. What’s most striking about today’s
buyback wave, largely unpredicted, is how extremely concentrated
it is. Of all the planned buybacks announced since the TCJA was
enacted—slightly over a trillion dollars’ worth, says Americans for
But then something happened. There
were no more home runs to cheer. The stock
market boom has evaporated; while stock
prices were recently at record highs, those
highs were scarcely higher than prices back
in January 2018. Since then they’ve risen
at a compound annual growth rate of only
about 4%; adjusted for inflation, the gain
is less than 2%. Likewise, corporate profits
are down. Economic growth, after accelerat-
ing, is slowing way down as well. Candidate
Trump said he’d raise GDP growth “from
1% up to 4%. And I actually think we can go
higher than 4%. I think you can go to 5% or
6%.” That was fantasy. The tax cut combined“The Trump adminis-tration lost theC-suite in 2018.I think the cause ismainly trade. ”Douglas Holtz-Eakin • American Action Forum