Quote (AspenSniper @ 9 Jun 2021 04:42)
Trump's tax cut was literally the worst thing you can possibly do to an economy and he did it purely to artificially boost the 2 main economic metrics people look at - stock market + unemployment rate. The tax cuts he put in place was said to be to "put more money in workers' pockets." It did for those with enough loose cash to toss in the stock market to take advantage, but other than that it just benefited the rich.
The Trump Tax Cuts had a small impact on your own individual taxes, but a massive reduction in corporate taxes. Companies slightly boosted hiring, which led to unemployment staying very low. However, the vast majority of this money went into stock buybacks (where companies quite literally take the free cash flow they have and instead of investing into pay raises for their employees, new machinery, new technologies, etc., they just literally convert their cash into more company stock, restricting the amount of available shares, and thus artificially boosting their stock price. For those who don't understand how this drives money into executive bonuses, I'll explain: Executives are compensated almost entirely in bonuses in the form of a Short Term and Long Term Incentive Plan. They set goals on metrics most commonly as Relative TSR (stock price) and EPS (earnings per share) along with some combination of ROIC/EBITDA/etc. In order for executives to get paid, the stock price of their company has to outperform that of their "peers" which is typically 12-20 companies similar in size and industry. They have bonuses set with a "threshold, target, and max" goal. Threshold typically = 50% payout, Target = 100% payout, Max = 150-200% payout. So if a company's stock price beats out say 25% of their peers, they'll earn the "threshold" goal of 50% of their bonus amount. If they beat out 50-55% of their peers, they'll get paid 100% of their bonus amount. If the stock price beats out 75% of their peers, they can get a 200% payout of their target bonus amount. Meaning, if your company's stock price doesn't soar and you're an exec, you ain't gettin paid because salary is typically only 10% of your overall pay. (If anyone wants to learn more about executive compensation packages, I designed them for Russell 3000 firms for years, PM me).
So, now we know that company's spent their money on repurchasing their own shares to artificially & temporarily boost their own stock price. I say artificially & temporarily because these tax cuts are basically just giving free money off the bottom of the balance sheet and temporary because if they are just buying their own stock, they aren't actually growing the company so it'll all level out within a few years once that extra cash is used up to buy more stock. So, aside from that, why is it bad? Well, take Delta Air Lines for example. They, like most, took all that money and invested it into their company stock. Then, Coronavirus hit (or it could've been any market driver, so don't just blame Coronavirus). What happened? Their stock price fell in the toilet. Meaning, if they took $1 billion from their extra Trump bucks and put it into stock buybacks, and their stock price fell 50%, then they quite literally took $500 million and lit it on fire. Then, because they had no free cash on hand and their stock was too low for it to make sense to dilute their shares further, they laid off a bunch of workers and then asked the government for bailout money (not so "free market conservative capitalism is it?)
Thus, my point is that Trump's tax cuts resulted in stock repurchases that led to massive layoffs for the workers while executives enjoyed huge bonuses for the prior 2-3 years. That's the kind of economic change that moves the needle in a huge way. So if the stock market does falter, everyone will blame Biden because he's president. However, let's not forget the massive debt that stemmed from Trump by taking money from us taxpayers, giving it to businesses to light on fire, then spiking the debt for PPP loans and bailout money for "free market businesses."
Enjoy my manifesto.
The Trump tax cuts, while containing some nice provisions like capping SALT deductions, were not good policy on aggregate. Too much of the cuts went to corporations and too little to average workers. The growth-inducing effect of tax cuts of the same magnitude would have been stronger with a less corporate-heavy distribution. I said as much back when the tax cuts were passed. Nonetheless, I have to disagree with large parts of your analysis.
First of all, nobody could know that a once-in-a-century pandemic would wreak havoc on the global economy, and I'm sure you agree that fiscal/economic policy decisions should not take into account every last kind of tail risk. And practically speaking, that wouldn't be feasible anyway. With something like covid, public companies just have to take the temporary losses on the nose and sit the thing out.
Second, a large part of your argument is based on the assumption that the money these corporations invested into stock buybacks has been lost/"lit on fire" when the stock market collapsed . This just isn't accurate. The pandemic was a textbook example of an external shock, there was nothing fundamentally broken with the economy (like in 2007-09). Once the virus and the accompanying restrictions are no longer a factor, the real economy is due for a large rebound, and the stock market with it. With less stocks in circulation due to the buybacks, these gains will be distributed among a smaller number of shareholders, leading to proportionally higher increases in EPS.
Third, you seem to argue that the covid layoffs could have been prevented if the companies had had more cash on hand - but that's completely unrealistic. With or without the Trump tax cuts, the corporations would never have been sitting on a huge pile of cash.
This post was edited by Black XistenZ on Jun 9 2021 06:09pm