No, Trump Tax Cuts Were Not Economic Rocket Fuel

No, Trump Tax Cuts Were Not Economic Rocket Fuel May 30, 2019

One of the lies Trump continually repeats is that his massive tax cuts were “economic rocket fuel” that kicked the economy into overdrive and driven unemployment down. Here’s yet another non-partisan study that finds that this is nonsense, that almost none of the tax windfall was invested in new plants or capacity.

“At the heart of America’s revival are the massive tax cuts that I signed into law a year ago,” Trump said at an event for the National Association of Realtors in May. “And they are like rocket fuel for America’s economy.”

It’s a bit odd for Trump to claim that tax cuts signed into law in December of his first year in office are responsible for “America’s revival,” given that the unemployment rate dropped from 4.7 percent in January 2017 to 4.1 percent the month the law was enacted — and, 16 months later, is only at 3.6 percent. (Especially given that the decline has been fairly steady since 2010.)

It’s not “odd,” it’s lie, one now being debunked by the Congressional Research Service.

“In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy,” the report’s summary reads in part. “Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run.”

That’s followed by a number of other “althoughs,” which serve as rebuttals to common assertions made by Trump and his allies.

Although the economy did grow, the cuts came nowhere close to paying for themselves. “[T]he combination of projections and observed effects for 2018 suggests a feedback effect of 0.3% of GDP or less,” the report reads — “5% or less of the growth needed to fully offset the revenue loss from the Act.” In other words, 95 percent of the increase in the deficit wasn’t offset at all.

Although wages grew, they grew more slowly than GDP. “If adjusted by the GDP deflator, labor compensation grew by 2.0%,” it reads at another point. “With labor representing 53% of GDP, that implies that the other components grew at 3.8%. Thus, pretax profits and economic depreciation (the price of capital) grew faster than wages.” Put another way, companies saw a greater increase in earnings than workers did. Modest inflation-adjusted wage growth “is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates,” the report states.

Study after study has now shown that only a small percentage went to investment, while most it went to buy back corporate stock and thus concentrate wealth in fewer and fewer hands. That’s because there was nothing to impede such investment in the first place, with corporate profits at all-time highs and cheap credit widely available. If a company believed demand would justify new investment, it would have invested. They didn’t. Not to mention the exploding deficits.

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