Straight from Capitol Hill - the GOP Tax Scam has done little for workers or the economy.

This news was largely blocked out by Robert Mueller telling Nancy Pelosi to ITMFA on Wednesday, but the Congressional Research Service released its analysis of another bit of corruption that involved the GOP - the tax cuts that Trump and GOP pushed through at the end of 2017.

This analysis not only looked at who paid the taxes (and who didn't), but also what happened with the economy in the year after this Tax Scam became law. And the CRS report openly says that the GOP Tax Scam did little to change what everyday Americans did economically, because it was overwhelmingly slanted to the rich and corporate, and wasn’t needed, given that the economy was growing just fine as it was.

Consumption grew at 2.6% in 2018 in real terms, as shown in Figure 2, about the same as 2017 (which was 2.5%) and below 2014-2016 (although higher than 2013). As shown in Figure 2, there was a drop in the first quarter followed by a rise in the second quarter that was unexpected by most forecasters and may have reflected a delay in tax refunds. The initial effect of a demand side is likely to be reflected in increased consumption and the data indicate little growth in consumption in 2018. Much of the tax cut was directed at businesses and higher-income individuals who are less likely to spend. Fiscal stimulus is limited in an economy that is at or near full employment….

CRS added that the Tax Scam wasn't close to “paying for itself”, with overall revenues declining as much as was predicted before it was signed into law. But remarkably, corporate tax revenues actually went down a lot more than the Congressional Budget Office thought it would.

As noted above, data on GDP are not consistent with a large growth effect in 2018, and thus the tax cut is unlikely to provide enough growth to significantly offset revenue losses in 2018. Data from FY2018 suggest that the tax cut for corporations may have been larger than the $94 billion CBO projected in its April 2018 baseline. That baseline projected corporate revenues of $243 billion, but actual corporate revenues were $38 billion lower at $205 billion, 16% lower than projected. CBO’s January 2019 report on the budget and economic outlook indicated that these lower corporate tax revenues could not be explained by economic conditions and stated that the causes will not be apparent until information from tax returns becomes available over the next two years. CBO also expected this decline in revenues to dissipate over time. With little evidence of whether the decline will actually be temporary or permanent, CBO may have relied on the historical tendency of unexplained changes to dissipate over time. It is also possible that estimated revenue losses from the corporate tax changes were too low in their earlier estimates.

The overall revenues were close to those projected (under the pre-tax cut predictions) as the lower corporate revenues were offset by gains from other taxes: a $45 billion increase in individual income tax revenues and a $7 billion decrease in payroll taxes. These differences, particularly for payroll taxes, are much smaller as a percentage of revenue, and CBO does not indicate any need for an explanation of these changes outside of economic force.

The CRS says the benefits of the Tax Scam overwhelmingly went to corporations over everyday Americans, and that corporations basically had their taxes cut in half while actual people got a few crumbs.

Much of the tax revision was focused on corporations. Although the statutory corporate tax rate was reduced from 35% to 21%, the average effective tax rate decline (taxes divided by profits) would be smaller because of existing tax benefits (which lead to a smaller initial effective tax rate) and base-broadening effects. Such an effective tax rate can be calculated using aggregate data from the national income and products accounts, which attempt to measure economic income. The effective average tax rate for corporations was 17.2% in calendar year 2017, and fell to 8.8% in calendar year 2018.19 This estimate includes worldwide income, but not worldwide taxes. Although actual data on the division of domestic and worldwide income are not available for 2018, using the ratios projected by CBO to eliminate foreign-source income from the measure results in an average effective tax rate of 23.4% in 2017, falling to 12.1% in 2018.20 Either scenario suggests that the ratio of effective to statutory tax rate dropped following the tax revision. The statutory tax rate dropped by 40%, but the effective rate dropped by 48% (although the percentage point drop was smaller for the effective tax r/ate)….

The individual income tax changes for 2018 were smaller than the corporate tax changes in absolute size and substantially smaller as a percentage of income. The effective individual tax rate for federal income taxes as a percentage of personal income is estimated at 9.6% in 2017 and 9.2% in 2018, based on data in the National Income and Product Accounts. This change constitutes a reduction in effective tax rate of 4%. The Treasury Department’s Office of Tax Analysis estimates a larger reduction in effective tax rate as a percentage of adjusted family cash income, with the rate falling from 10.1% in 2017 to 8.9% in 2019, although this estimate is based on projected rather than actual data. Both of these declines are smaller than the corporate tax rate decline. As noted earlier, the increase in the standard deduction and child and dependent credit was roughly offset by the elimination of the personal exemption. Statutory rate reductions for individuals were relatively small compared with the corporate rate reduction (the top rate of 39.6% was reduced by 2.6 percentage points, compared with 14 percentage points for the corporate rate), and the benefits of rate reductions were offset by restrictions on itemized deductions. Business income was in some cases eligible for a 20% reduction, which was more significant (an additional 20% deduction at the 37% rate is 7.4 percentage points), but not all business income qualified.

OK, I guess we’re not surprised that corporations got most of the benefits, but it’s remarkable that individuals got very little out of it, and much less than what Trump’s Treasury Department claimed they would.

Not only did the tax rates not go down much for typical Americans, but wage growth wasn’t much different either. That’s an especially large failure given that we should have been seeing higher wage growth given our place in the economic cycle, and it proves that few of these windfall profits for corporations trickled down to regular folk.

In the absence of the tax cuts, wages should grow with the economy and wage rates should grow as the capital stock grows. In addition, tight labor markets resulting from the approach to full employment should have put upward pressure on wage rates in any case. Evidence from 2018 indicated that labor compensation, adjusted to real values by the price indices for personal consumption expenditures, grew slower than output in general, at a 2.3% rate compared with a 2.9% growth rate overall. If adjusted by the GDP deflator, labor compensation grew by 2.0%. 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.

Figure 4 shows the growth rate of real wages compared with the growth rate of real GDP for 2013-2018, indicating that wage growth has sometimes been faster than GDP growth and sometimes slower. There is no indication of a surge in wages in 2018 either compared to history or relative to GDP growth. This finding is consistent with the CBO projection of a modest effect.

The Department of Labor reports that average weekly wages of production and nonsupervisory workers were $742 in 2017 and $766 in 2018.35 Wages, assuming full-time work, increased by $1,248 annually. But this number must account for inflation and growth that would otherwise have occurred regardless of the tax change. The nominal growth rate in wages was 3.2%, but adjusting for the GDP price deflator, real wages increased by 1.2%. This growth is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates.

The CRS report also says that the Tax Scam was successful in bringing foreign assets and profits back to the US to be “repatriated”. But most of those assets were distributed in the form of dividends (which were basically made tax-free to corporations under the Tax Scam), while less money was reinvested back into the business than in the previous year.

A significant amount of repatriations occurred in 2018, as compared both to history and 2017. Dividends in the previous three years ranged from $144 billion to $158 billion, as shown in Figure 5, whereas $664 billion was repatriated in 2018. Simultaneously, reinvested earnings declined sharply before returning to more normal levels in the 4th quarter of 2018.

The last passage I’ll include goes over all of those bonuses that companies were publicly giving to their employees, and crediting the Tax Scam for doing so. No surprise, but it was all PR BS, and the CRS also says that doing so at the end of 2017 allowed corporations to get a bigger write-off in that year.

During the passage of the tax revision and in the immediate aftermath, some argued that firms would use these funds to pay worker bonuses (as discussed in the previous section on wages). Subsequently, a number of firms announced bonuses, which in some cases they attributed to the tax cut. One organization that tracks these bonuses has reported a total of $4.4 billion. With US employment of 157 million, this amount is $28 per worker. This amount is 2% to 3% of the corporate tax cut, and a smaller share of repatriated funds. It is consistent with what most economists would expect that a small percentage of increased corporate profits or repatriated funds (if any) would be used to compensate workers, as economic theory indicates that firms would pay workers their marginal product, a result of fundamental supply and demand forces. The bonus announcements could have reflected a desire to pay bonuses when they would be deducted at 35% rather than 21% (in late 2017 for firms with calendar tax years but in 2018 for firms with different tax years). Worker bonuses could also be a result of a tight labor market and attributed to the tax cut as a public relations move.

Much of these funds, the data indicate, has been used for a record-breaking amount of stock buybacks, with $1 trillion announced by the end of 2018. A similar share of repurchases happened in 2004, when a tax holiday allowed firms to voluntarily bring back earnings at a lower rate.

So in a number of different ways, corporations made out like bandits due to the GOP Tax Scam in 2018, while the average person got at best a minor tax cut with a bump in wages that likely would have happened anyway. In addition, many of us with real jobs had to write surprise checks to the IRS a few months ago after it became worthless to take certain deductions.

Now as the corporate profit Bubble pops with no real driver of the economy going forward, you can bet that workers will pay first as growth slows and we head toward recession in the coming months (an inverted yield curve doesn’t tend to lie). The CRS report shows the Tax Scam is an even bigger failure than we said it was going to be, but hey, GOP politicians got their donations from oligarchs and lobbying spots lined up, so why do they care?