There are a lot of reasons Harwood cites as to why the Tax Scam hasn’t done nearly what was promised. Much of it we already are familiar with -added growth wasn't close to filling the deficit hole created by the tax cuts, and targeting the tax cut to the rich a corporate played a big role in that.
But Harwood says another reason the Tax Scam fell short has to do with changes in how business is run in the late 2010s. These days, economic power is in fewer hands, and because those businesses would rather boost stock prices instead of actually grow their companies, there hasn’t been nearly the growth that one might expect.
The idea that lower taxes would boost business investment sounds intuitive. But in examining lackluster investment growth after the 2017 tax cut compared with earlier ones, International Monetary Fund economists this spring identified an explanation: corporate consolidation has freed dominant firms with high profit margins to invest as they choose with less regard for government tax rates. “In an environment of rising market power, corporate tax cuts become less effective at raising investment,” the IMF economists wrote….Basically, Harwood’s article notes that there was a small, one-time bump from the Tax Scam in the first half of last year. And now that this has worn off, there is nothing left to sustain higher growth.
The 2017 tax cut’s international provisions reduced incentives for U.S.-based multinational corporation to attribute profits to overseas subsidiaries taxed at lower rates. Trump had predicted that would jump-start the economy by bringing trillions of dollars back to the U.S.
But a Federal Reserve study of initial results found “no obvious spike in investment” among the 15 companies holding the most cash abroad. Those firms had easy access to investment capital before the tax cut, the study noted, and instead boosted stock buybacks to reward their existing owners.
Most broadly, the tax cuts have not generated the promised growth of 3% or more – even in tandem with the additional stimulus of large government spending increases that Congress enacted separately. After an uptick in the second quarter of 2018, growth declined in the next two quarters to end up at 2.9% for the year.
Goldman Sachs economist Jan Hatzius says that second-quarter surge – initially measured at 4.2% but later revised down to 3.5% – represented the tax law’s peak impact. He expects it to vanish altogether by late this year or early 2020, as the economy returns to the same 2% growth levels Trump inherited from President Barack Obama.
Note that while the DC GOPs have given all of these tax breaks to the rich and corporate, they have done nothing to encourage wages to grow for the everyday Americans that need to consume in order to keep the economy moving. The GOP refuses to consider a minimum wage increase that passed the House last month, and the GOP is vehemently against encouraging unionization, which might allow workers to use bargaining power in a time of sub-4% unemployment and slow labor force growth.
Meanwhile, the US budget deficit will likely climb past $1 trillion next month, and while that hasn’t jacked up interest rates or inflation as of yet, it could tie the hands of policymakers for more tax cuts or other economic stimulus if/when we fall into recession in the near future.
So given that the Tax Scam is a failure in giving a sustainable boost to the economy, and because its distortions have put almost all of its benefits into the pockets of a group of people who didn’t need the help, maybe House Dems should consider using the upcoming budget debate for FY 2020 as a place to draw the line on this idiotic policy.
Oh, but now Trump and the rest of the GOPs have an answer as 2020 nears. MOAR TAX CUTS!
BREAKING from WaPo: Senior WH officials are considering a payroll tax cut to stimulate the economy.— Heather Long (@byHeatherLong) August 19, 2019
Congress would have to approve, but it's another sign of WH worrying about a recession or deeper downturn in 2020.https://t.co/JwUR8YvbdJ Scoop by @damianpaletta #economy
I know, I'm laughing too. But at least this time, the cut would be on Social Security taxes that are only paid on the first $132,900 of income, so at least it'll help all wage earners, and likely give a bigger benefit to lower-income Americans.
However, I don't see plan to offset this tax cut (likely because TrumpWorld just pulled it out of their backsides), which means our already-growing deficit would get even larger.
Small reductions in the payroll tax rate can reduce revenue significantly. The base is broad!— Kyle Pomerleau (@kpomerleau) August 19, 2019
Back of the envelope calculation: A cut in the employee OASDI rate by 1 percentage point would reduce federal revenue by >$65 billion a year.
So if I'm the Democrats in Congress, I use the GOP's desperation as a way to start getting rid of the worst part of the GOP Tax Scam - the major cut in taxes for the rich and corporate. Remember, the FY 2020 budget needs to be passed by the end of next month. The "budget deal" from last month was just a framework to allow more spending, but it's not specific on what the taxes and spending should be laid out.
That happens with the full-year budget, and Dems should demand a dollar-for-dollar increase in corporate taxes for any payroll tax cut, or expand the cap for paying into Social Security. Why not double it up to $265,800, which likely would allow Social Security to pay full benefits well past 2033, while giving the overwhelming majority of Americans a tax cut? And if GOPs won’t agree to that, then let’s see how Wall Street and Trump like the possibility of another government shutdown.
Likewise, if there is any added spending to be had (as Mitch McConnell and Trump agreed to as an admission that they need government to keep spending to keep the economy growing), then make that a dollar-for-dollar trade in reversing some of the provisions of the Tax Scam that isn't working out, and make the GOPs publicly justify continuing the Tax Scam's money-funnel to corporates in a time of flagging wage, GDP and job growth.
So if the Trump Administration wants to juice the economy in a new way, let’s use that as an opportunity to level the field back to where we have an economy that grows for all. Beats where we're currently headed - having Wall Streeters and corporations grow asset Bubbles that drag the average American along, only to have those bubbles burst and have Americans crash to earth after being cut loose by those same rich, corporate greedheads.