At this point, it hardly bears mentioning, but just in case: The Trump tax cuts were not a “middle class miracle”, as the administration and the GOP have variously insisted.
Rather, the tax cuts were precisely what they were designed to be: A windfall for corporations and the wealthy.
That windfall was in no small part responsible for record corporate profits in 2018 and helped catalyze another wave of buybacks, which further enriched shareholders (by supporting equity prices), thereby exacerbating the wealth divide (ownership of financial assets is heavily skewed towards higher income brackets). Have a look at the 2018 numbers in the charts below.
Buybacks fell through Q3 of 2019, as the initial impact of the tax cuts faded, but repurchases are still the major source of demand for US equities.
Why go back over this? Well, for one thing, the effect of the tax cuts is likely to be a major campaign issue in the general election, as whoever the Democratic nominee turns out to be will almost surely hit Trump on the extent to which his tax cuts disproportionately benefited the wealthy.
With that in mind, have a look at the following chart:
As Trump would put it, “billions, and billions, and billions, and billions”.
And just what, you might fairly ask, has that accomplished for Trump’s base? After all, many lower- and middle-income Americans were victims of Wall Street’s greed during the financial crisis, and large swaths of the voting public have not benefited from the run-up in stocks by virtue of not being members of the income groups which, according to Fed data (and also according to common sense), own the vast majority of financial assets.
Well, not much – a $32.4 billion handout hasn’t accomplished much for those folks.
Because, as Bloomberg writes on Thursday, loan growth for the banks mentioned in the chart fell to 1% last year from 3% in 2018, and their combined workforce shrank by a net 1,200 people over the period.
At the same time, they declared their intention to return a total of $21.5 billion to stockholders. Thanks to the tax cuts, profits at the largest banks hit $120 billion in 2019. Prior to Trump, they had never risen above $100 billion.
That, apparently, is your “populist” president who has been hard at work improving the plight of “forgotten” Americans like, I don’t know, Jamie Dimon.
Of course, this is no surprise. Look at Trump’s cabinet. Hell, even Steve Bannon, Mr. Anti-Establishment “hero”, worked at Goldman.
I guess Trump was right on Wednesday when, during the half-hour preamble to the signing of the trade deal with China, he turned to JPMorgan’s Mary Erdoes and demanded she pay homage to Dear Leader.
“They just announced earnings and they were incredible”, the president said of the bank’s Q4 results which were, in fact, incredible. “Will you say, ‘Thank you, Mr. President,’ at least, huh?”
Meanwhile, farmers like Anne Lee have been forced to stand in line at food banks thanks in part to the trade war. According to the Farm Bureau, Chapter 12 farm bankruptcies are still on the rise. Over the past 12 months, for example, bankruptcies totaled 580 filings, a 24% jump from the previous 12 months.
But that’s fine. At least folks like Mary Erdoes are no longer “forgotten”. In 2018, she made $20.5 million.
[Editor’s note: None of the above is designed to in any way, shape or form malign Wall Street employees, many of whom are acquaintances and some of whom are friends. It’s not even to malign executive pay. Rather, it is simply a reflection of reality, and that is something many GOP voters are blind to these days.]