Apple’s stock jumped 37 percent in its runup to that record. Several variables were behind the climb, including higher-than-expected earnings. But congressional Republicans themselves had a hand in the spike, stock analysts say. Legislation they championed — the 2017 Tax Cuts and Jobs Act — doled out nearly $150 billion in corporate tax savings last year alone. One effect: a big boost in stock prices.
Cutting tax rates for companies like Apple and hundreds of other stocks they own was one of many ways Republican lawmakers enriched themselves after they passed the tax law, according to a Center for Public Integrity analysis of the 186-page law and members’ financial disclosure forms. Democrats also stood to gain from the tax bill, though not one voted for it; all but 12 Republicans voted for the tax bill.
As part of the bill, Republicans approved tax breaks in 2017 for seven classes of assets many of the wealthier members of Congress held at the time, including partnerships, small corporations, real estate, and several esoteric investment vehicles. While they sold the bill as a package of business and middle-class tax cuts that would not help the wealthy, the cuts likely saved members of Congress hundreds of thousands of dollars in taxes collectively, while the corporate tax cut hiked the value of their holdings.
“It feels to me like a kleptocracy,” said Jeff Hauser, director of the Revolving Door Project at the Center for Economic and Policy Research, a left-leaning think tank in Washington, DC.
Such congressional self-enrichment has been thrust into the 2020 presidential campaign. Democratic candidate Sen. Elizabeth Warren has said her first priority as president would be to pass an anti-corruption package that, among other things, would forbid members of Congress from owning individual stocks, bonds, and other securities so they could not benefit from tax or financial laws they passed.
“Under current law, members of Congress can trade stocks and then use their powerful positions to increase the value of those stocks and pad their own pockets,” Warren wrote in a September Medium post.
Republicans own lots of stock
Two years after the passage of the Trump tax act, its effects — some obvious, some hidden — are coming into focus. One is its cost: Contrary to Republican claims, the law is not paying for itself and is likely to burden the nation with an additional $1.9 trillion in debt over 11 years beginning in 2018, according to the Congressional Budget Office.
And while the law cut tax rates for people of all income brackets, some of its tax benefits overtly favored the wealthy, such as the 2.6 percentage point tax rate cut in the highest bracket and the doubling of the estate tax exemption to $11.2 million. Other provisions were subtler yet favored the wealthy even more: tax breaks for their investments, for instance, or changes that boosted the value of their stocks. Among the rich beneficiaries are members of Congress, more than half of whom were found to be millionaires in 2014.
The tax law’s centerpiece is its record cut in the corporate tax rate, from 35 percent to 21 percent. At the time of its passage, most of the bill’s Republican supporters said the cut would result in higher wages, factory expansions, and more jobs. Instead, it was mainly exploited by corporations, which bought back stock and raised dividends. In 2018, stock buybacks exceeded $1 trillion for the first time ever, according to TrimTabs, an investment research firm. Net corporate dividends reached a new high in 2018 of more than $1.3 trillion, nearly 6 percent more than the previous year. The result, analysts say: The buybacks boosted stock prices, and bigger dividends put even more money in the pockets of stockholders.
Promises that the tax act would boost investment have not panned out. Corporate investment is now at lower levels than before the act passed, according to the Commerce Department. Though employment and wages have increased, it is hard to separate the effect of the tax act from general economic improvements since the 2008 recession.
The boost in stock prices, however, was predictable. As the bill was reaching its final stages in 2017, Bryan Rich, the CEO of Logic Fund Management, a wealth advisory company, wrote that the proposed corporate rate cut “will go right to the bottom line of companies — popping EPS [earnings per share] and driving stocks even higher.”
Those benefits mainly went to the rich, as the wealthiest 10 percent of Americans own 84 percent of all stocks. The 10 richest Republicans in Congress in 2017 who voted for the tax bill held more than $731 million in assets, almost two-thirds of which were in stocks, bonds, mutual funds, and other instruments, according to Roll Call’s semiannual assessment of Congress’s wealth.
The precise amount of Republicans’ windfall can’t be determined without a review of the members’ tax returns, which they are not required to disclose.
All but one of the 47 Republicans who sat on the three key committees overseeing the drafting of the tax bill own stocks and stock mutual funds, according to Public Integrity’s analysis. Rep. Mike Kelly (R-PA) was among them. A member of the Ways and Means Committee, which oversaw the writing of the tax bill in the House, Kelly reported in 2018 that his spouse owned 101 individual stocks, Apple included, with a minimum total value of $439,000.
When he voted for the 2017 tax cuts, which will be funded by nearly $2 trillion in added debt, Kelly called it “the most important vote I’ve ever cast.” Yet 19 months later, he voted against a two-year budget agreement that added to the national debt by hiking government spending for defense and nondefense programs by $320 billion. Kelly warned that “America is driving toward a fiscal cliff.”
Orrin Hatch (R-UT) was chair of the Senate Finance Committee in 2017, when he and his wife owned mutual funds and a limited liability corporation valued between $562,000 and $1.430 million, paying them between $12,700 and $38,500 in dividends and capital gains, according to Hatch’s financial disclosure forms. They also owned a blind trust worth between $1 million and $5 million. (Congressional financial disclosure forms do not require members to report the precise value of assets and income but rather in 11 different ranges, each with a minimum and a maximum value.)
For decades, Hatch, who retired in 2018, had been one of the loudest deficit hawks in Congress. Just 10 months before he would shepherd the tax bill through his committee, Hatch said, “The national debt crisis poses a significant and growing threat to the economic and national security of this country.”
His concern over national security lasted two months. In April, Hatch signaled he was open to a Republican tax bill that would likely add to the national debt. When Republicans passed the tax bill in December 2017, he beamed. “This is a historic night,” he said at a press conference.
(The Center for Public Integrity sought comment from 13 current or former members of Congress mentioned in this article; only two responded.)