Wednesday, November 14, 2018

In Trump's tax cuts Republican mythology meets harsh realities

Judd Legum alerts us to The harsh reality of Trump’s tax cuts at

After Trump’s corporate tax cuts became law in December 2017, the administration rolled out dozens of press releases from major corporations touting benefits for workers. The cuts, the American people were told, would spur a hiring boom.

New data shows that, while job growth has been steady, it’s not due to the large companies that benefited most from slashing corporate tax rates. The largest 1,000 public companies have reduced their payrolls.

Just Capital research finds that, since the tax cuts were passed, the 1,000 largest public companies have actually reduced employment, on balance. They have announced the elimination of nearly 140,000 jobs — which is almost double the 73,000 jobs they say they have created in that time.

That was the short version. The NY Times reports in a longer version. Trump’s Tax Cut Was Supposed to Change Corporate Behavior. Here’s What Happened. Nearly a year after the tax cut, economic growth has accelerated. Wage growth has not. Companies are buying back stock and business investment is a mixed bag.

The investment bump

Proponents of the tax overhaul said it would supercharge the recent lackluster pace of business spending on long-term investments like buildings, factories, equipment and technology.

Such spending is crucial to keeping economic growth strong. And strong growth is central to Republican claims that the tax cuts would ultimately pay for themselves.

Capital spending did pick up steam earlier this year. For companies in the S&P 500, capital expenditures rose roughly 20 percent in the first half of 2018. Much of that was concentrated: The spending of just five companies — Google’s parent, Alphabet, and Facebook, Intel, Exxon Mobil and Goldman Sachs — accounted for roughly a third of the entire rise. Much of that spending went toward technology, including increased investment in data centers and computing, server and networking capacity.


… that pace fizzled during the third quarter. Recently data showed third-quarter business investment rose at an annual pace of 0.8 percent. …

The results of a survey published in late October by the National Association for Business Economics showed that 81 percent of the 116 companies surveyed said they had not changed plans for investment or hiring because of the tax bill.

The Buyback Binge

Cheerleaders for the tax cut argued that the heart of the law — cutting and restructuring taxes for corporations — would give the economy a positive bump, giving companies incentives to invest more, hire more workers and pay higher wages.

Sure enough, a lot of cash businesses held overseas was repatriated to the U. S.


About half of it went to stock buybacks.

The flow of repatriated corporate cash is just one tributary in what has become a flood of payouts to shareholders, both as buybacks and dividends. Such payouts are expected to hit almost $1.3 trillion this year, up 28 percent from 2017, according to estimates from Goldman Sachs analysts.

“Skeptics said that the money companies saved through tax cuts would merely increase corporate profits, rather than trickling down to workers.” They were right.

Bonus Announcements

Shortly after the tax law passed, hundreds of companies — from large multinationals to small manufacturers — announced that they would be using some of their windfall from the law to give one-time bonuses to employees. Others said they would raise minimum wages across the company, or expand worker benefits.


Data from large public companies, however, suggest that most workers received relatively small shares of their employers’ corporate tax savings.

The nonprofit research group Just Capital, which is tracking 1,000 large public companies’ reports of how they are spending their tax cuts, calculates that the typical worker at one of those large companies has received about $225 this year in increased salary, a one-time bonus, or both, attributable to the new law.

For those who detest math, I’ll put it this way: your “typical worker” got a bump of $4.33 per week. Don’t count on that family visiting Starbuck’s any time soon.

The Wage Story … however:

Nearly a year after the cuts were signed into law, wage growth has yet to pick up when accounting for inflation. In September, the Labor Department reported that inflation-adjusted wages had risen 0.5 percent from the year before. That’s a slower rate of growth than the economy itself experienced in September 2017, when it was 0.6 percent.

Jobs promised … however:

Remember the opening quotes from “… the 1,000 largest public companies have actually reduced employment, on balance. They have announced the elimination of nearly 140,000 jobs — which is almost double the 73,000 jobs they say they have created in that time.”

And then there is the deficit

That is to say: how are all these things that are not happening - other than for the corporate tax breaks - being paid for? You know the answer: with an ocean of public debt.

Supporters of the tax cuts repeatedly claimed the bill would increase economic growth enough to offset the decline in tax receipts. “I’m totally convinced this is a revenue-neutral bill,” said Senator Mitch McConnell of Kentucky, the Republican leader, when a preliminary version of the bill was approved in the Senate in December 2017.


Despite a remarkably strong economy, the fiscal health of the United States is deteriorating fast, as revenues have declined sharply. The federal budget deficit — the gap between what the government collects in revenues and what it spends — rose to $779 billion in the 2018 fiscal year, which ended Sept. 30. That was a 17 percent increase from the prior year.

It’s highly unusual for deficits and borrowing needs to grow this much during periods of prosperity. A broad variety of analysts attribute the widening deficit to the tax cuts (along with increased military and other domestic spending ushered in through a bill Mr. Trump signed earlier this year).

The Times displayed the deficit trends in a revealing graph. Our yearly deficit maxed out in 2008 when deficit spending was used as a tool to stimulate the economic recovery from the great recession. Ever since, the deficit has declined. But that trend has reversed under Trump.

Steve Benen (MSNBC/MaddowBlog) has more: New deficit figures mark a fitting end to the Tea Party era.

In 2010, Republicans rode a wave into a House majority, fueled by Tea Party activism and a focus on “fiscal responsibility.” GOP officials and candidates said at the time that they were deeply concerned about the deficit “crisis,” which would impose crippling burdens on future generations.

Eight years later, in their month before the midterm elections that would push them into minority status, House Republicans saw the deficit reach $100 billion, fueled in part by tax breaks they didn’t even try to pay for.

The “movement,” such as it was, failed.

Postscript: Every time we discuss the deficit, I feel compelled to point out again that I’m not a deficit hawk, and I firmly believe that larger deficits, under some circumstances, are absolutely worthwhile and necessary.

These are not, however, those circumstances. When the economy is in trouble, it makes sense for the United States to borrow more, invest more, cushion the blow, and help strengthen the economy.

The Trump White House and the Republican-led Congress, however, decided to approve massive tax breaks for the wealthy and big corporations when the economy was already healthy – not because they were addressing a policy need, but because they were fulfilling an ideological goal.

And now that the deficit is spiraling, those same Republicans have decided that what the nation really needs is more tax breaks – none of which will be paid for – and cuts to Medicare and Social Security.

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