{"id":916,"date":"2018-04-30T22:37:42","date_gmt":"2018-05-01T02:37:42","guid":{"rendered":"http:\/\/www.gopplaybook.com\/?p=916"},"modified":"2018-04-30T22:37:42","modified_gmt":"2018-05-01T02:37:42","slug":"hows-that-tax-cut-working-out","status":"publish","type":"post","link":"https:\/\/www.gopplaybook.com\/?p=916","title":{"rendered":"How\u2019s That Tax Cut Working Out?"},"content":{"rendered":"
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By\u00a0Paul Krugman,\u00a0Opinion Columnist\u00a0\u00a0\u00a0<\/a>April 30, 2018<\/span><\/p>\n

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A protest in Washington on April 17 was tied to the scheduled deadline to file income tax returns.<\/span>Credit<\/span>Alex Wong\/Getty Images<\/span><\/figcaption><\/figure>\n<\/header>\n
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So far, Donald Trump and his allies in Congress have achieved one and only one major legislative victory: passing a large tax cut, mainly aimed at corporations and business owners. The tax cut\u2019s proponents promised that it would lead to a dramatic acceleration of economic growth and produce big gains in wages; they hoped that it would also yield big political dividends for the midterm elections.<\/p>\n

So how\u2019s it going? Politically, the tax cut is a damp squib:\u00a0Most voters say<\/a>they haven\u2019t seen any boost to their paychecks, and Republicans are\u00a0barely talking about the law<\/a>\u00a0in their political campaigns. But what about the economics?<\/p>\n

You might be tempted to say that it\u2019s too early to tell. After all, the law has been in effect for only a few months, and we got our\u00a0first look<\/a>\u00a0at post-tax-cut economic growth only last week. But here\u2019s the thing: To deliver on its backers\u2019 promises, the tax cut would have to produce a huge surge in business investment \u2014 not in the long run, not five or 10 years from now, but more or less right away. And there\u2019s no sign that anything like that is happening.<\/p>\n

Let\u2019s talk about the economics here.<\/p>\n

Anything that increases the budget deficit should, other things being the same, lead to higher overall spending and a short-run bump in the economy (although there\u2019s no indication of such a bump in the first-quarter numbers, which were\u00a0underwhelming<\/a>). But if you want to boost overall spending, you don\u2019t have to give huge tax breaks to corporations. You could do lots of other things instead \u2014 say, spend money on fixing America\u2019s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers.<\/p>\n<\/div>\n<\/div>\n

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Furthermore, any short-term boost will probably be quickly squelched by the Federal Reserve, which believes that we\u2019re at full employment and which is gradually raising interest rates to keep the economy from overheating. You can argue that the Fed is wrong, but the case for easier monetary policy has nothing to do with the Trump tax cut.<\/p>\n

No, the case for a corporate tax cut is the claim that in the long run it will raise wages. How is that supposed to work?<\/p>\n

It never made sense to believe that corporations would immediately share their tax-cut bounty with workers, and they haven\u2019t. Any news organizations that let themselves be bamboozled by cherry-picked stories of firms announcing worker bonuses after the tax bill passed should be ashamed of their credulity.<\/p>\n

The real logic behind corporate tax cuts is that they\u2019re supposed to lead to higher investment. This investment, in turn, would gradually increase the stock of capital, simultaneously driving down the pretax rate of return on investment and pushing up wages.<\/p>\n

There are two questions about this supposed process. One is how much wages will rise in the long run. Most independent estimates predict only modest gains; the Trump administration\u2019s wildly optimistic predictions aren\u2019t just out of the ballpark,\u00a0they\u2019re in another universe<\/a>. Still, to be fair, that\u2019s not a question on which the data have had time to speak.<\/p>\n<\/div>\n<\/div>\n

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But the other, equally important question is, how long is the long run? As Greg Leiserson of the Washington Center for Equitable Growth\u00a0points out<\/a>, \u201cevery month in which wage rates are not sharply higher than they would have been absent the legislation, and investment returns are not sharply lower, is a month in which the benefits of those corporate tax cuts accrue primarily to shareholders.\u201d A tax cut that might significantly raise wages during, say, Cynthia Nixon\u2019s second term in the White House, but yields big windfalls for stock owners with only trivial wage gains for the next five or 10 years, is not what we were promised.<\/p>\n

To get major wage gains before, for example, the 2024 election \u2014 never mind 2020 \u2014 we\u2019d need to have a huge near-term boom in business investment, mainly financed by inflows of capital from overseas. I mean\u00a0really, really huge<\/a>. And there\u2019s no sign that this is happening.<\/p>\n

True, business investment as a share of G.D.P. is\u00a0up slightly<\/a>\u00a0over the past year, but it\u2019s still well below its level before the financial crisis \u2014 let alone the heights it reached in the 1990s.<\/p>\n

Is it just too soon to expect results? Are businesses getting ready to ramp up investment, so that we\u2019ll see them laying out the big bucks in the near future? Not according to a\u00a0survey by the Federal Reserve Bank of Atlanta<\/a>. A vast majority of businesses say either that the tax law has had no effect on their investment plans, or that they are planning only a modest increase.<\/p>\n

In short, the effects of the Trump tax cut are already looking like the effects of the Brownback tax cut in Kansas, the Bush tax cut and every other much-hyped tax cut of the past three decades: big talk, big promises, but no results aside from a swollen budget deficit.<\/p>\n

You might think that the G.O.P. would eventually learn something from this experience, realize that tax cuts aren\u2019t magical, and come up with some different ideas. But I guess it\u2019s difficult for a man to understand something when his campaign contributions depend on his not understanding it.\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

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Follow me on Twitter (@PaulKrugman<\/a>) and\u00a0Facebook<\/a>.<\/p>\n

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