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Asia

Tax reform will fill shareholders' pockets but hit the middle classes, ex-US commerce secretary says

The United States’ proposed tax reform is projected to boost corporate earnings — and most of those savings are likely to go into shareholders’ pockets, said former U.S. Commerce Secretary Penny Pritzker.

If the tax plan is passed, as many are expecting, the U.S. will see corporate taxes fall from current rates of 35 percent to as low as 20 percent.

But the benefits accrued will be distributed unevenly among Americans, creating winners and losers, according to billionaire Pritzker.

“I think there will be some (savings) that will go to wage increase, and some that may go to investment, but I think a lot of it is going to go frankly to corporate share buybacks or dividends,” Pritzker told CNBC.

Buybacks occur when firms purchase their own shares, reducing the proportion in the hands of investors. Like dividend payments, buybacks offer a way to return cash to shareholders, and usually see a company’s stock push higher as shares get scarcer.

According to the ex-commerce secretary, corporate tax reform is crucial to increasing the competitiveness of U.S. businesses, but the current plan fails to create inclusive growth.

“You can’t do it on the backs of raising taxes on the middle class,” Pritzker said, adding that it was unacceptable that the current bill accepts, as part of its design, an expanding budget deficit. Senate Majority Leader Mitch McConnell has said the Senate tax bill is a “revenue-neutral tax reform bill” but analysis of the bill has suggested it would add at least $1 trillion to the deficit.

“I hope that in the conference committees that will go on, that there will be an effort to say ‘How do we bring down those deficit projections and still achieve significantly lower corporate tax rates?'” she said.

House Republicans are set to go to a conference committee with the Senate to reach an agreement on tax reform.

Pritzker is not the first to have voiced concern over the possible impact of the bill on the middle class.

Senator Ron Wyden of Oregon has said that one study showed “middle-class Americans will ultimately see a tax hike under Republicans’ plan while corporate sponsors line their own pockets with multi-trillion-dollar giveaways.”

President Donald Trump and his administration have labored to sell the reform package as a win for the group.

“I view it more than anything else as it’s a tremendous bill for jobs and for the middle class,” the president told reporters at the White House Tuesday.

However, a recent poll found that sixty-one percent of Americans said they thought the plan favors the rich at the expense of the middle class.

Source: cnbc china
Tax reform will fill shareholders' pockets but hit the middle classes, ex-US commerce secretary says

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