[ad_1]
meIt was two days before Christmas Eve in 2017. Donald Trump signed a tax reform that he and his colleagues in the Republican Party were pushing for. Several American companies took this as an opportunity to advertise goodwill for their employees. The telecommunications company AT&T announced that it wanted to pay its 200,000 US employees a bonus of $ 1,000 each and praised the new tax law as a “monumental step.”
Retail giant Walmart promised not only a bonus, but also an increase in the minimum wage and all-new benefits like share of adoption costs. The electronics company Apple announced that it would invest $ 30 billion in the United States over the next five years and create 20,000 jobs. Trump cheered on Twitter: “Big companies shower their employees with bonus payments” and added: “Merry Christmas!”
The tax reform is considered one of the greatest successes Trump has had since moving into the White House. It brought big changes, especially for companies. The income tax rate was lowered from 35 to 21 percent, investments can be amortized more quickly with tax deductions, and opportunities have been created to bring foreign earnings back to the United States at a greatly reduced tax rate. It doesn’t matter what top managers think of Trump in general: Most of them see tax reform as positive.
Tax rate below global competition
Andreas Fibig, a Berlin native who runs the New York-based fragrance and fragrance maker IFF, says his company was able to at least partially offset a major competitive disadvantage. Its tax rate remains above the Swiss competitor Givaudan, but well below Germany’s Symrise. The taxes saved could be used for investments or the payment of dividends.
“I would like to see a corporate tax reform in Germany as well,” says Fibig. The Agco agricultural machinery group, headed by Martin Richenhagen and therefore also German, benefited above all from the new tax rules for foreign profits. Richenhagen says Agco returned about $ 500 million to the United States, with the money earmarked for investments, acquisitions and share buybacks.
However, many of the promises surrounding tax reform have not been kept, or at least not for all. Trump made bold predictions. He promised increased investment and accelerated economic growth of up to 6 percent, a figure unprecedented in more than 30 years. He said corporations would recoup $ 4 trillion in foreign profits in a short period of time, boosting the American economy. His financial advisers calculated that any additional investment would also benefit the average household, increasing their annual income from $ 4,000 to $ 9,000.
In fact, after the tax reform, companies have increased their investments. However, in an International Monetary Fund study, this was mainly associated with a strong market situation and less with lower taxes. Additionally, companies only used 20 percent of their additional liquidity for investments after the tax reform. The remaining 80 percent was spent on share buybacks and dividends.
Economic growth did not exceed 3 percent
“It’s a huge imbalance,” says Ben Willis, a tax specialist at Tax Analysts, which publishes tax policy analysis. Investment growth also weakened significantly last year, which, according to the “Tax Policy Center” think tank, is not consistent with Trump’s promises of a “long-term investment boom” and the associated increase in income for average Americans.
Economic growth, on the other hand, increased in 2018, but did not exceed 3 percent, and in 2019 it fell again. The repatriation of foreign profits was also limited. Regardless, the $ 4 trillion Trump mentioned was unrealistic. It is estimated that American companies accumulated less than $ 3 trillion abroad at the time of the tax reform. But even from that, just under $ 780 billion was recovered in 2018, and it has been even less since.
