Late last month acting White House Chief of Staff Mick Mulvaney continued the trend of Trump administration officials hinting at an upcoming “tax cuts 2.0” plan. Out of all the issues and priorities that the US could and should be focusing on right now, the White House has decided the most pressing thing that could be done is yet another round of tax cuts. Details are sparse, but from all appearances, just like the first round of tax cuts, the newly proposed tax cuts are going to be a handout to millionaires, billionaires, and special interests.
Mulvaney’s latest idea is to cut the current corporate tax rate from 21% to 20%. Now a 1% tax cut may not seem like that big of a tax cut, but 1% of all corporate profits is an incredibly significant number, and cutting corporate taxes by 1% would result in huge returns for the richest 1% of Americans. Let’s look at a real-world example, multinational conglomerate Berkshire Hathaway.
The Chairman and CEO of the company, Warren Buffett, currently owns 16.5% of Berkshire Hathaway. We estimate that lowering the corporate tax rate from 21% to 20% would result in:
- A one time savings of $2.08 billion; (This was estimated by looking at the one time profit from the reduction in deferred taxes from the reduction in the tax rate from 35% to 21%, and calculating 1/14 of that number, since this contemplated reduction is 1/14th as much).
- Of which Mr. Buffett’s share would be $343 million.
We also estimate that the tax cut would:
- Decrease the company’s annual tax expense by about $995 million.
- Therefore increasing the value of the company by about $26 billion (using the recent price to earnings ratio).
- Of which Mr. Buffett’s share would be about $4.3 billion
Based on reasonable estimates, overall Mr. Buffett’s personal wealth would have a one time increase by about $4.6 billion.
To put it into context, the US House just passed a $8.3 billion funding package for the coronavirus – Mr. Buffett’s personal wealth increase from a 1% tax cut could fund over half of that package. To put even further into perspective how enormous that tax refund is, in 2019 the poorest 20% of Americans saw an average measly tax cut of $60. Mr. Buffett’s increase in wealth from this corporate tax cut would be more than all of the tax refunds for all of those tens of millions of people.
Small cuts can have large ramifications. Inequality in America is escalating to unsustainable levels, but instead of using our tax code to combat inequality, the Trump White House is pushing reckless ideas that would only further increase the gap between the rich and everyone else. The Trump administration’s first attempt at rewriting the tax code, the 2017 Tax Cuts and Jobs Act, overwhelmingly benefitted the top 1%. It comes as no surprise that in considering round two, the White House is following the same playbook and looking at tax cuts that would disproportionately favor the wealthy.
Americans do not need Mr. Buffett to get another windfall of $4.6 billion. This shouldn’t be a tough decision. Millionaires have skated by for decades paying less than their fair share under a regressive tax code. The TCJA made our tax code even more regressive, and even more rewarding to the top 1%. If the White House is going to pursue further tax cuts, it should look to cuts that would genuinely benefit the middle and lower class, rather than the donor class. If we are going to see “Tax Cuts 2.0,” corporate tax cuts should not be on the list. We shouldn’t be giving breaks to the rich, we should be taxing the rich.