Trump Tax Cut Hands $32 Billion Windfall to America’s Top Banks
(Bloomberg) -- Savings for the top six U.S. banks from President Donald Trump’s signature tax overhaul accelerated last year, now topping $32 billion as the lenders curbed new borrowing, pared jobs and ramped up payouts to shareholders.
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley posted earnings this week showing they saved $18 billion in 2019, more than the prior year, as their average effective tax rate fell to 18% from 20%. Bloomberg News calculated the haul by comparing the lower tax rates to what they paid before the law took effect, which averaged 30%.
Debate has raged over the tax overhaul’s impact since Trump signed it into law near the end of his first year in office, with critics saying it’s worsening inequality by favoring the wealthy and inadequately stimulating economic growth. Because banks used to pay higher tax rates than many other industries, they were among the biggest beneficiaries.
Proponents predicted lowering rates would give lenders more cash to fuel the economy, helping companies invest in expansion, hire workers and raise pay.
Here are the trends at the top six banks since then:
The tax savings have spurred the banks to record profit. The six firms posted $120 billion in net income for 2019, inching past 2018’s mark. They had never surpassed $100 billion before the tax cuts.
On conference calls with analysts to discuss earnings this week, some bank executives predicted the tax rates may tick back up slightly to between the levels of 2018 and 2019. That suggests some of last year’s savings may also have been attributable to temporary factors. But in at least one case, a bank’s rate was elevated last year by legal expenses that aren’t tax deductible.
Trump, who’s also pushed to ease financial regulation, indicated Wednesday he’s aware that his efforts have helped banks boost profits. At a gathering of corporate leaders to celebrate his trade deal with China, he greeted a senior JPMorgan executive by suggesting the bank thank him.
“They just announced earnings and they were incredible,” the president said of the nation’s largest bank. “I made a lot of bankers look very good. But you’re doing a great job.”
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, David Scheer
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