michael barbaro

From The New York Times, I’m Michael Barbaro. This is “The Daily.” Today: As they lobbied the Trump administration for a $1.5 trillion tax cut, corporations promised that they would invest the savings right back into the U.S. economy. Jim Tankersley investigates whether that actually happened. It’s Tuesday, November 19.

archived recording (donald trump) To all Americans, I say it’s time for change and time for leadership. Just think about what we can accomplish in the first 100 days of a Trump administration. We’re going to have the biggest tax cut since Ronald Reagan, even —

jim tankersley

Throughout the 2016 presidential campaign, Donald Trump had promised he was going to cut taxes.

archived recording (donald trump) We are proposing major tax relief for the middle class and lowering the business tax from 35 percent all the way down to 15 percent.

jim tankersley

Big tax cuts for individuals, and especially for businesses, which he said was going to revitalize the American economy as a big part of his economic program.

archived recording (donald trump) And you will see companies expand, companies come back into our country, companies not leave our country anymore because taxes and regulations are so onerous.

jim tankersley

It’s one of his top priorities. He gets into office. His team starts working on it. But it’s not what they do first in Congress.

michsel barbaro

Mm-hmm.

archived recording (donald trump) Finally, we want a very big tax cut, but cannot do that until we keep our promise to repeal and replace the disaster known as Obamacare.

jim tankersley

What they try to do first is repeal Obamacare.

archived recording This morning, Republicans are fighting to pass a new health care plan. Right now, House Republicans just don’t have enough votes to pass the replacement to Obamacare.

jim tankersley

And in the spring of 2017, that effort is not going well, and neither is Trump’s tax plan.

[music]

michael barbaro

Why not?

jim tankersley

Well, the version of the tax bill that Republicans are working on has some big opponents in the business community. And there’s a real question over whether they can actually craft a bill that passes muster with enough folks in Congress, and with the business community, and makes it all the way to President Trump’s desk, and he’ll sign it.

michael barbaro

Right. I remember this feeling like a perilous moment for this young presidency. It’s struggling to repeal the Affordable Care Act, and it is struggling to convince people to support its tax cuts.

jim tankersley

Right.

archived recording 1 There is a lot of discord within the Republican Party as to what works when it comes to tax reform and when it comes to health care. archived recording 2 Six months into his term, he has exactly zero big legislative accomplishments to boast about.

jim tankersley

If there’s one thing you would have expected a Republican president with Republican majorities to be able to do, it’s pass a big tax cut.

michael barbaro

Mm-hmm.

jim tankersley

And yeah, we’re at this moment in the spring when that looks like that might not happen. And into the breach of that steps Fred Smith.

michael barbaro

And who is Fred Smith?

jim tankersley

Fred Smith is a former Marine who went to Yale and wrote a famous paper in a class that imagines a new type of company that is so wild in its imagination that he gets a C on the paper.

michael barbaro

[LAUGHS]

jim tankersley

But he turns around and takes the basis of what he has sketched out on the paper into a company, and builds it into FedEx —

archived recording America, you’ve got a new airline. There’s no first class, no meals, no movies — in fact, no passengers, just packages.

jim tankersley

— this enormous, multinational shipping conglomerate and delivery company.

archived recording Federal Express, a whole new airline of packages only.

michael barbaro

And how exactly does the founder of FedEx, Fred Smith, get involved in this?

jim tankersley

Well, he has been an advocate for lower corporate tax rates for a really long time. And now he sees this opportunity with President Trump, a real ally of corporate tax cuts in the White House, to push this plan he’s been working on for years. And he does something more than just push the idea of tax cuts into the public discourse. He and his team at FedEx actually write their own plan —

michael barbaro

Wow.

jim tankersley

— their own tax proposal.

michael barbaro

And what’s in this Fred Smith plan?

jim tankersley

The FedEx plan is really centered around a big cut in the corporate tax rate, from 35 percent to 20 percent, and some extra carrots for businesses to be able to write new investments off their taxes right away, so two things that Fred Smith and a lot of other executives say are going to spur a renaissance of business investment in America.

archived recording (frederick smith) The fundamental problem with the U.S. tax code is that it punishes investment.

jim tankersley

The argument is that the United States was being held back in its economy by a lack of business investment —

archived recording (frederick smith) And at the end of the day, investment is what produces high-paying jobs.

jim tankersley

— that companies just weren’t spending money that they were sitting on, basically, and they weren’t spending it on capital spending that economists see as very important to economic growth.

archived recording (frederick smith) If you make the United States a better place to invest, there is no question in my mind that we would see a renaissance of capital investment, a growth in G.D.P. and an increase in an income for our blue-collar workforce in the United States.

michael barbaro

What kind of investments is Fred Smith talking about? When we talk about capital investments, what do we mean?

jim tankersley

We’re talking about plants. We’re talking about equipment. In FedEx’s case, we’re talking about airplanes or a transportation hub or new technologies that can help to deliver or sort packages faster. So something that can help you make your business run more efficiently — that’s the kind of thing that economists think of as big, productive capital investments.

michael barbaro

Got it. And the reason that would help the rest of the economy is someone has to build that plant, someone has to build that plane. It just ripples across.

jim tankersley

It ripples across for a couple of reasons. One, it creates demand for those products that are being invested in, which, yes, need to be built, and need to be installed or flown or whatever. But the other real argument is that having these new technologies put in place helps workers do more.

archived recording (frederick smith) Investment is the only way to make blue-collar workers, people that don’t have college degrees, more productive and have more income. So you can hire six people to move a pile of dirt, or you can hire one person with a bulldozer. The difference is the bulldozer. The bulldozer driver makes a lot more money than the people with the shovels.

jim tankersley

And the argument was that companies weren’t doing that because their profits were taxed too heavily. And it was more profitable for them to invest in other countries than in the United States because America’s tax rates weren’t competitive.

archived recording (frederick smith) It’s just like us playing basketball. And on our end of the court we’re playing with a 12-foot basket, and everybody else that we compete with around the world is shooting on a 10-foot basket.

jim tankersley

Fred Smith makes this very clear promise, saying, if we cut corporate tax rates, businesses are going to start investing again in America, and the economy is going to grow faster. And that’s going to help workers and everyone.

michael barbaro

Jim, how skeptical are people of the Fred Smith school of thinking here, that big corporate tax cuts will lead to big investments in the economy and to a lot of growth in the U.S.?

jim tankersley

Well, a huge part of Washington is not skeptical at all. They are pushing this. The Trump administration, Republicans in Congress, many sort of economists who support tax reform are arguing to one degree or another that there will be more investment, lots more, if you just cut the corporate tax rate. There is, though, this dissenting group, including a lot of Democrats and liberal economists, who make the argument that, hey, companies have a lot of money. They don’t need lower taxes to have just a little bit more money to invest it. If they want to invest it, they can. It’s sitting right there on their balance sheets. And cutting their taxes is not going to dramatically increase investment because that’s not what’s holding them back.

michael barbaro

And I’m curious, Jim, how much was FedEx paying in corporate taxes at the time that Fred Smith was making this argument?

jim tankersley

So throughout the time that he’s making this argument, FedEx is paying what it calls in its financial filings an effective tax rate of about 33 percent or 34 percent, which is a lot. In just the fiscal year 2017 alone, it paid more than $1.5 billion in taxes.

michael barbaro

So that’s a meaningful tax bill.

jim tankersley

It’s a meaningful tax bill. And it’s close to the top corporate tax rate in America, which is 35 percent before the Trump tax cuts passed.

michael barbaro

So what happens to the Fred Smith tax plan?

jim tankersley

The tax plan arrives in Washington and gets a warm reception, and it injects energy in what had been a little bit of a stalled process.

[music]

archived recording Brightening prospects of a major tax cut, especially for corporations.

jim tankersley

And it helps open the door again for all of the champions of tax reform to work together for a new bill.

archived recording (donald trump) And as a Christmas gift to all of our hardworking families, we hope Congress will pass massive tax cuts for the American people.

jim tankersley

So Republicans get back on track on the tax bill, particularly spurred on by the fact that they fail completely to repeal the Affordable Care Act. So now this is it. The business community is back on board, they’re lobbying hard. The Trump administration is working key details out with congressional negotiators.

archived recording President Trump is heading to Capitol Hill today to boost momentum for the tax reform bill that could become his first legislative victory.

jim tankersley

We enter the fall. The House passes a version of the bill.

archived recording Debate is still happening on the Senate floor. But this bill does appear to be gaining momentum.

jim tankersley

The Senate narrowly passes a version of the bill, with no Democrats supporting it. And then they put them together, and the final proposal includes the really big corporate rate cut. Basically, just like what Fred Smith and FedEx have proposed.

michael barbaro

Mm-hmm.

jim tankersley

And it includes a bunch of other incentives for investment, also like FedEx had proposed.

michael barbaro

And then, of course, the bill passes.

jim tankersley

The bill passes. I do vaguely recall in my fever dreams from that time period of working 20-hour days that the bill did pass.

michael barbaro

[LAUGHS]

jim tankersley

And the president did sign it into law.

archived recording (donald trump) The corporate tax rate, as you know, will be lowered from 35 percent to 21 percent. That means that more products will be made in the U.S.A. A lot of things are going to be happening in the U.S.A. We’re going to bring back our companies. They’ve already started coming back. I think they had a certain confidence in me. They figured we were going to get this done.

jim tankersley

This law includes individual tax cuts. It includes some other provisions. But the centerpiece, the thing it was sold on, was the idea that it would reinvigorate economic growth in America. And it would do that by supercharging business investment. It’s almost hard to understate just how often and vocally Republicans and the president made that case to voters, that this is what American business and the American economy needed for more domestic investment.

michael barbaro

So once this bill passes, what is FedEx’s tax bill? How much does it save?

jim tankersley

So the bill passes. And FedEx files financial statements for the fiscal year 2018 at the end of the year. And it shows that rather than paying $1.5 billion, like it paid the last year, it actually was owed money by the government. It has a negative effective tax rate.

michael barbaro

What?

jim tankersley

Yeah, negative 5 percent.

michael barbaro

So less than zero.

jim tankersley

Less than zero.

michael barbaro

Wow. And how much of that savings, $1.5 plus billion, is attributable to this tax bill?

jim tankersley

All of it. Over the first two years after the tax law, we can count $1.6 billion.

michael barbaro

Hmm. So that’s a pretty staggering figure. But then again, we know that FedEx plans to use that money to reinvest in the American economy.

jim tankersley

So that’s the story that FedEx told before the law passed.

[music]

But the story that played out is different.

michael barbaro

We’ll be right back. So Jim, what happened with all this money that FedEx saved from this tax cut that it played such a huge role in shaping?

jim tankersley

FedEx had said, up to the eve of the bill being signed, that they were going to use the money to increase investment. But they didn’t. Investment actually went down compared to what they had projected. And then the next year, it went down again.

michael barbaro

Hmm. So what did FedEx do with these savings if they were not investing it in the kind of things that we all thought they would?

jim tankersley

Well, it largely rewarded its shareholders. It increased dividends, which is the money it regularly pays people who own its stock. And it bought back shares of that stock, which has the effect of pushing up prices of the stock for the people who own it. Now, to be clear, it did some good things for its workers, too. It accelerated some raises. It increased the size of its workforce. It made a large contribution to its pension plan. But the big winner were shareholders. And that’s a group that is largely, if you look at who owns stock in America, skewed toward the very wealthy.

michael barbaro

So the promise that FedEx made, that they would invest much of the savings from this tax cut into the kind of projects that would benefit everyday workers across the economy — instead, the benefit of the way they used this money really went to people who are largely already pretty well-off.

jim tankersley

In the short term, that seems very clear.

michael barbaro

Why do you think that FedEx did that?

jim tankersley

I had a lot of questions for FedEx about how they spent their tax money. I tried to ask some of the executives over a period of a couple months. I was never granted an interview with an executive. I sent very detailed questions, including one very similar to the one you just asked. Most of them went unanswered. I would love to hear FedEx’s explanation of how it has made the decisions it’s made with its tax cut windfall.

michael barbaro

Hmm. Jim, how typical was this for companies that received these big savings from the tax cuts, that they did not use it to invest, and instead they used it to buy back shares or pay dividends?

jim tankersley

It was very typical. My colleagues and I did a few different analyses to sort of demonstrate just how widespread this type of behavior was. And here’s a few ways of looking at it. One is that companies increased share buybacks and dividends by about triple as much as they increased investment following the tax cuts.

michael barbaro

Wow.

jim tankersley

Another is that investment has now grown more slowly since the tax cuts under President Trump than it grew before the tax cuts under President Trump.

michael barbaro

Which is another way of saying that the central claim of the tax cuts, and how they would be used, and how it would benefit the economy, that has just not come to pass.

jim tankersley

It is not.

michael barbaro

Jim, if these companies were to call you back, and you were able to ask what their thinking was, would there be an argument from a company like FedEx about why the way it chose to use this money is wise and will benefit the American economy?

jim tankersley

Absolutely. The argument goes like this. First off, rewarding shareholders is just another way to increase investment. Because those shareholders will use that money to invest in different companies, who will use that money productively. The other argument is that it’s just too soon to tell the effects of tax cuts on investment, that basically what changes for companies when you cut their tax rate is not, oh, they get a bunch of money today. It’s that investments tomorrow pay off even more. Because the profits you get back, you pay less taxes on. And so we would expect over time to see more investment, not right away.

michael barbaro

Is there any truth to that? Are these arguments from the companies about how they use this money accurate, that it eventually will really help the economy?

jim tankersley

I think there are mechanical truths that you can see to those arguments. But it’s also true that this is all really complicated, and that this was sold as a very simple relationship. Cut the taxes, investment will increase. And just the fact that we’re not seeing that happen right away flies in the face of the arguments that were used to sell the bill. I think that’s really important here, is that, yes, it may be true that investment over time is slightly more competitive in America because of a reduction in marginal business tax rates. But that was not what President Trump stood up at rallies and talked about. He talked about growing the American economy by 3, 4, 5, 6 percent a year because of all this flood of investment coming back to the United States. And we just don’t see it.

michael barbaro

Jim, why is this important, at the end of the day? I mean, these companies successfully lobbied for a tax cut. They got it. It’s their money. Theoretically, can’t they just do what they want to do with it, whatever that is?

jim tankersley

I think it’s important to hold politicians and their supporters accountable for the promises they make, particularly when those promises have real-world implications. The economy is not performing as well as we were promised it would when the tax cuts were passed. It’s not growing as fast. It doesn’t have as much investment. And if you believe the arguments that were made to sell this, that’s hurting workers. Because slower growth is keeping their incomes from rising as fast as they should be. So real people are suffering from not having that additional growth that they were promised they would have and now don’t. A then there’s this one last thing, which is this all comes at a cost. It’s not free to just give money back to corporations by cutting their tax bills. Despite what the proponents said, which was that the law would pay for itself — the additional growth — what we’re actually seeing is a massive, hundreds-of-billions-of-dollars-a-year effect to grow the federal budget deficit. And last year, that deficit came very close to topping $1 trillion.

michael barbaro

And how big a role is the tax cut playing in that ballooning deficit?

jim tankersley

It is the primary driver of additional deficits beyond what we had already before the law was passed.

[music]

michael barbaro

Jim, thank you very much.

jim tankersley

Thank you.

michael barbaro

In a statement, FedEx criticized the Times reporting about its tax savings and investments, but offered no specific factual objections. In the statement, the company’s founder and C.E.O., Fred Smith, challenged the publisher of The Times to a public debate about federal tax policy in Washington. In response, a spokeswoman for The Times dismissed the request as a stunt and a, quote, “effort to distract from the findings of our story.”

[music]

We’ll be right back. Here’s what else you need to know today.

archived recording (mike pompeo) The establishment of Israeli civilian settlements in the West Bank is not, per se, inconsistent with international law.

michael barbaro

On Monday, the Trump administration declared that the U.S. does not consider Israeli settlements in the West Bank to be in violation of international law, reversing four decades of American policy.

archived recording (mike pompeo) We’re not addressing or prejudging the ultimate status of the West Bank. This is for the Israelis and the Palestinians to negotiate.

michael barbaro

The Times reports that the new policy would likely doom any peace talks between Israelis and Palestinians by legitimizing Israeli settlements on West Bank territory that Palestinians have demanded for a future state. And —

archived recording [GUNSHOTS]

michael barbaro

— in a closely watched showdown, police in Hong Kong have surrounded nearly 500 student protesters on a college campus, threatening them with gunfire and tear gas unless they surrender. The standoff has turned the college campus into Hong Kong’s latest battleground over democracy and the influence of China. The students there have used homemade firebombs, slingshots and bows and arrows to defend themselves against the police, but now appear to be cornered.

archived recording [YELLING]

michael barbaro