Edward Conard

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How Big Companies Won New Tax Breaks From the Trump Administration

Jim Tankersley New York Times
Date Posted:
December 31, 2019
Is Database:
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The Tax Cuts and Jobs Act (TCJA) reduced corporate tax rate from 35% to 21%, but companies continued to shift profits to tax havens & lobbying efforts minimized tax liabilities. @JimTankersley

The Tax Cuts and Jobs Act (TCJA) reduced corporate tax rate from 35% to 21%, but companies continued to shift profits to tax...
The Tax Cuts and Jobs Act (TCJA) aimed to stimulate the U.S. economy by reducing the corporate tax rate from 35% to 21%, encouraging companies to repatriate profits held overseas. Despite initial projections, the U.S. experienced the largest drop in tax revenue among OECD countries in 2018, with the IRS collecting significantly less in corporate taxes than expected. The Congressional Budget Office (CBO) noted that while overall U.S. tax revenues decreased, the TCJA included substantial middle-class tax cuts. The law's impact on employment exceeded forecasts, adding over a million jobs beyond expectations. However, companies continued to shift profits to tax havens, and lobbying efforts led to regulatory adjustments that allowed many corporations to minimize their tax liabilities further. The Treasury's interpretation of the law, influenced by lobbying, resulted in exemptions that reduced the anticipated revenue from new taxes like BEAT and GILTI, highlighting the complexity and challenges in curbing corporate tax avoidance.

“Impossible to say from this article. Will need the CBO to opine, which they do every year. The article is very deceptive. You would think the law was written to say companies could not expense legitimate offshore expenses on products shipped to the US. That would tax them on revenue not profit. Fat chance Congress intended that. Interest is similarly a cost of goods sold for banks and therefore must be expensed. In both example, I would guess they wrote the law as Congress truly intended -- i.e. the economically logical way. The articles also say us tax revenues went down, not that corp tax rev specifically went down. Yes, there was a big middle class tax cut. Also baseline matters. Corps were never going to pay offshore taxes and never have. CBO assumes all offshore money will eventually return to the US so all offshore taxes would eventually be paid. True baseline economically is to assume they were not going to get paid. The tax law increased payment. CBO counts it as a reduction. US economy has far exceeded pre Trump (CBO) forecasts despite a failing world economy. Employment was supposed to top out a million plus jobs ago. Hard to say tax cut didn't work. Dems think taxes don't matter/slow growth. Hard to believe.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

Two years after the tax cuts became law, their impact is becoming clear.

An Implied Threat

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

Several senators then met with Mr. Mnuchin to discuss the rules.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Heading to the Hill

“We were responsive to job creators,” he said.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

Banks flooded the Treasury Department with lobbyists and letters.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

Helping Foreign Banks

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

An Exhaustive Lobbying Campaign

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

From the start, the new taxes were pocked with loopholes.

Built-In Loopholes

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The other big measure was called GILTI: global intangible low-taxed income.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

Shifting Money

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

Racing for a Win

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

HIDING A HAVEN Many companies appear to have found ways around disclosing how overseas taxes will affect them.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

How Big Companies Won New Tax Breaks From the Trump Administration

Jesse Drucker and Jim Tankersley, "How Big Companies Won New Tax Breaks From the Trump Administration,"New York Times, December 30, 2019, https://www.nytimes.com/2019/12/30/business/trump-tax-cuts-beat-gilti.html

Ed Comment In Response To Patrick Dorton Question“If u score it now, where would it be?”

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Previous articleDecember 28, 2019The bloody toll from Baltimore, Chicagos soft-on-crime mindsetPolicy choices in Baltimore and Chicago have likely driven an uptick in violence, with both cities experiencing significant reductions in incarceration and prosecutorial retreat from low-level offenses.Next articleJanuary 7, 2020Prospects For Inflation In A High Pressure Economy: Is The Philips Curve Dead Or Is It Just Hibernating?The Phillips Curve appears to function at the MSA level but not at the national level, with MSA data showing significant negative slopes & nonlinearities, suggesting it’s still relevant locally.
Showing 218 database articles primarily about Business Cycle

3% vs. 60%

AI Summary. Direct lending represents roughly 3% of total U.S. household and business debt, a fraction of the 60% share mortgages held at the peak of the housing bubble.

Torsten Sløk Apollo
Date Posted:
April 8, 2026
Is Database:
Database

Torsten Sløk notes the direct lending market is ~$2T or 3% of household and non-financial debt outstanding. To provide context, he shows that in 2006, on the eve of the crisis, mortgages accounted for ~60% of such debt.

Core argument: Direct lending represents a small but growing alternative to traditional bank financing for businesses and households.

The direct lending market is roughly $2 trillion, or about 3% of total debt outstanding for US households and businesses. By comparison, mortgages accounted for about 60% of total household and corporate debt at the peak of the housing bubble in 2006.

Takeaways by Macro Roundup® AI

  1. Direct lending represents a small but growing alternative to traditional bank financing for businesses and households.
  2. The mortgage market’s dominance has shifted dramatically since the 2006 housing peak, reducing systemic risk concentration.
  3. Non-bank lenders now capture meaningful market share in credit provision across the economy.

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Top 10% of Earners Drive a Growing Share of US Consumer Spending

Jonnelle Marte Bloomberg
Date Posted:
September 17, 2025
Is Database:
Database

Mark Zandi finds Americans in the top 10% of the income distribution accounted for 49.2% of consumer spending in Q2, the highest level since 1989.

Consumers in the top 10% of the income distribution accounted for 49.2% of total spending in the second quarter, up from 48.5% in the first quarter, reaching the highest level in data going back to 1989, according to an analysis of Federal Reserve data by Mark Zandi, chief economist for Moody’s Analytics. In contrast, the bottom 80% of the income distribution, or consumers making less than roughly $175,000 a year, have seen their spending merely keep pace with inflation since the pandemic.

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Litigation Nation, Engineering Empire

Jonathon Sine Cogitations
Date Posted:
September 2, 2025
Is Database:
Database
Is Important:
Important

Jonathon Sine argues China “is moving beyond its breakneck industrial prime, facing similar dilemmas to those America confronted in the 1960s and 70s.” The ratio of science/engineering to humanities undergraduate majors is 2:1 in both the PRC and US.

Dan Wang’s “big idea” [is] “China is an engineering state, building big at breakneck speed, in contrast to the United States’ lawyerly society, blocking everything it can, good and bad.” I re-group US college majors according to Chinese disciplines to allow for rough comparison. Surprisingly, the ratio of science/engineering to humanities/social sciences is 2:1, the same as in China (if one groups management with science/engineering, as I also do for China). As with China today, America’s breakneck building phase was decidedly winding down by the 1960s. Urbanization went from 40% in 1900 to 70% by 1960, and grew much more incrementally over the next 60 years to 85% by 2020. The country simply did not need to continue building dams, expressways, and energy production facilities at breakneck pace. It became much more a matter of maintaining and upgrading (which has not gone well, at least according to the American Society of Civil Engineers’ report card). The American [building/investment slowdown that started after the 1970s] may be more about structural economic shifts than lawyers.

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How America’s AI Boom Is Squeezing The Rest Of The Economy

Economist Staff The Economist
Date Posted:
August 19, 2025
Is Database:
Database
Is Important:
Important

As AI-related investment has risen since 2023, residential and nonresidential investment have declined or flatlined. This may suggest that a relatively rate-insensitive AI buildout is crowding out more interest-sensitive forms of investment.

Something like a sixth of the 2% rise in American real GDP over the past year has come from investments in computer and communications equipment, including chips, and data centres. Add in the grid upgrades to power AI models, plus the intellectual-property value of the software itself, and one estimate puts the boom’s contribution to real GDP growth at 40%. The trouble is that the very sector powering so much of America’s economic growth is squeezing the rest of its output. Housebuilders, for instance, cannot afford to be blithe about higher borrowing costs. Data centres have also constrained the rest of the economy by keeping energy prices high. Average American electricity bills have risen by 7% so far in 2025, at least in part due to the extra strain data centres have put on the grid. Real consumption has flatlined since December. Housebuilding has slumped, as has non-AI business investment.

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Is it Over?

Joseph Wang Fed Guy Blog
Date Posted:
August 18, 2025
Is Database:
Database

Following tepid reactions to the release of GTP-5, Joe Wang observes, “It is looking more like companies are spending hundreds of billions on rapidly depreciating GPUs that produce a commoditized product that most clients only modestly benefit from.”

GPT-5 users widely expressed disappointment in the capabilities of the new release, which seemed in some ways a step back. This sentiment is reflected in benchmarks that show a modest improvement in capabilities since the significant improvement in version 4 released two years ago. In addition, the benchmarks suggest a broader convergence in the capabilities of AI models. Commentary suggests this could be due to inherent limitations in the LLM technology and exhaustion of new training data. AI is fascinating technology, but it may not justify the enormous sums spent in its pursuit. It is looking more like companies are spending hundreds of billions on rapidly depreciating GPUs that produce a commoditized product that most clients only modestly benefit from. The entire macro landscape would look very different without the support of the AI boom.

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US Households and Firms Are in Great Shape

Torsten Sløk Apollo
Date Posted:
March 31, 2025
Is Database:
Database

​​Torsten Sløk notes that US household and banking sector debt has fallen to its lowest level in decades as a % of GDP, while corporate leverage has moved sideways. “The bottom line is that the private sector in the US is in incredibly good shape.”

Household sector leverage and banking sector leverage have declined significantly since 2008. Over the same period, federal government leverage has increased significantly, and corporate leverage has moved sideways. The bottom line is that the private sector in the US is in incredibly good shape.

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    • Government Spending
  • GDP
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