Foreign Investors Were Big Winners From Trump’s Tax Law

President Donald Trump talks to the press on the South Lawn of the White House, Washington, D.C., July 2020.

Three years ago this month, President Donald Trump promised to enact a “pro-American tax reform.” But the tax overhaul that he signed into law late 2017 was anything but “pro-American.” In fact, as CAP pointed out when the tax cut passed, some of its biggest winners were wealthy foreign investors. Recent estimates show that the Trump tax law has given larger tax cuts to foreign investors over the past three years than it has to middle- and working-class Americans in all of the states that Trump carried in 2016—combined.

The centerpiece of the Trump tax law, also known as the Tax Cuts and Jobs Act (TCJA), was a massive corporate tax cut. Corporate tax cuts overwhelmingly benefit the people who own corporations—specifically, stockholders. The people who own corporate stock are overwhelmingly wealthy. Of all of the stock holdings of Americans, the top 1 percent by wealth own 52 percent, and the top 10 percent by wealth own 87 percent. And as the Tax Policy Center’s Steve Rosenthal has found, about 35 percent of U.S. corporate stock is owned by foreigners. Rosenthal’s estimate includes U.S. stocks held by foreign portfolio investors, including wealthy foreign individuals and the sovereign wealth funds of countries such as Norway, China, and Saudi Arabia. It also includes direct corporate equity investments, such as foreign multinational corporations that own U.S. subsidiaries.

That means that a large share of Trump’s tax cut accrued to foreign investors. According to recent estimates from the Institute on Taxation and Economic Policy, foreign investors have received $134 billion in tax cuts from 2018 through 2020, the three years the law has been in effect.*

To put that in perspective, that is more than the bottom 60 percent of American tax filers, constituting about 95 million households, have gotten in total from the Trump tax law, according to ITEP’s estimates. (see Figure 1)

And it is a larger total tax cut than the Trump tax law gave to the bottom 80 percent of tax filers in the 30 states that President Trump carried in 2016—about 72 million households—combined. (see Figure 2)

Figure 1

Figure 2

Figure 3

TCJA’s supporters argue that corporate tax cuts ultimately trickle down to American workers in the form of higher wages. But in the short run, TCJA’s steep, immediate corporate tax cut was merely a windfall for shareholders. And the trickle-down theory that posits workers benefit in the long run is not functioning in practice. The theory was that corporate tax cuts would spark such a boom in corporate investment that it would make workers more productive and that workers would benefit from that increased productivity in the form of higher wages. But TCJA did not produce an investment boom. In fact, business investment was declining even before the economic crisis wrought by COVID-19. Instead, corporations used their tax cuts to distribute more cash to shareholders through dividends and stock buybacks. Corporations have also increased their CEOs’ pay packages since the enactment of TCJA, as the Economic Policy Institute has found.

The giveaway to foreign investors is not the only way the 2017 tax law broke Trump’s “pro-America” promise. Provisions of the law created perverse incentives for U.S. corporations to locate physical assets, such as factories overseas, in what CAP Senior Fellow Kimberly Clausing calls the “’America Last tax policy.” The Trump administration also sweetened the corporate tax cut by acceding to lobbying from foreign corporations and foreign banks on key provisions of the regulations implementing TCJA.

Worst of all: The law dedicated nearly $2 trillion to ineffective tax cuts that have worsened inequality rather than investments that generate broad-based prosperity for Americans, including science, infrastructure, climate resilience, and early childhood. Despite the lofty promises made about it, the 2017 tax law has failed American families.

Seth Hanlon is a senior fellow at the Center for American Progress.

*Author’s note: ITEP’s national and state-by-state estimates of TCJA’s impact in 2018 are here; estimates for 2019 are here; and estimates for 2020 are here.