Sorry, Americaâs middle class: President Donald Trumpâs signature tax code overhaul has not generated any meaningful new economic growth that wasnât already underway, the nonpartisan Congressional Research Service (CRS) has found.
The new numbers inject further complexity into a contentious and ongoing debate around the landmark tax legislation as to who actually benefited from its passage. But the study should also offer additional clarity: With hard numbers now available on the economyâs performance in the first full year of the legislation, itâs easier than ever to talk instead about who got what and how â and the answers, so far, arenât pretty.
Large corporations with shiny accounting departments ended up being the largest beneficiaries of the tax billâs largesse, with the rate of tax they actually pay dropping by half in 2018, according to the CRS analysis. But the vanishingly insignificant comparative break Trumpâs law gave workaday people lays the game bare. This tax bill is already reshaping the real-world economy in ways that limit the prospects of ordinary people, potentially reinforcing the structural inequities that adversely impact democratic society.
Trump and his congressional allies had forecast massive jumps in GDP growth and working-family incomes from the package. None materialized in year one. Annual growth hit 2.9% â identical to the 2015 mark, well below the 3.3% the Congressional Budget Office forecast when it sought to predict the tax billâs impact in April of 2018, and right in line with what the CBO had predicted the economy would have done without Trumpâs corporate-tax munificence.
The reportâs findings underscore the deceitful nature of the administrationâs first-term sales pitch.
Working people wereÂ supposed to benefit from the slashed corporate income tax rate and related rules tweaks intended to lure offshored profits back into the U.S. economy. American companies werenât hiding $3 trillion in profit outside the country out of malice, the argument went. Rather, they were afraid of seeing it taxed too sternly, and would happily bring it home to make productive and equitable use of it just as soon as they felt it was safe from the taxman.
Some business heads dutifully followed this script in small and symbolic ways shortly after the law was signed, issuing year-end bonuses to their frontline employees and accompanying them with heavy fanfare in the press. But even the high-end estimates of those bonus payments account for less than 3% of the money corporate payers got handed back to them by the tax law. Those bonuses may have had as much to do with firmsâ recognition that falling unemployment rates would make it easier for unhappy workers to leave for greener pastures, theÂ CRS reportÂ notes.
So what happened to the other 97% of the money corporate accountants were handed by the government? A trillion dollars of it went to shareholders, as the law triggered a record wave of stock buybacks â an unproductive back-scratching activity that keeps the money firmly ensconced in upper-class hands that have little reason to spend that new cash back into the economy where working stiffs make their living.
This grand act of class solidarity between wealthy elected officials, wealthy corporate executives, and wealthy investorsÂ was entirely predictable. Corporate tax repatriation enticements and rates-slashing typically generate this kind of unproductive reshuffling of capital â thereby reinforcing the working classâs sense that they arenât even being dealt into the hand.
Such stark differences in outcomes for the masses and the privileged few help fuel the populist anger thatâs on the march across nearly every developed democracy on the planet.
Wages â a more stable indicator of how much wealth capitalists are allowing to pass through to their labor than any one-off bonus âÂ offer no respite from the gloomy CRS diagnosis. Blue-collar wages rose just 1.2% in 2018 after accounting for inflation, the reportâs authors found, which âindicated that ordinary workers had very little growth in wage rates.â
Out of every three taxpayers, roughly two owed the government less this tax year than they had prior to the new tax law. Many people who got a tax cut in year oneÂ appear not to have noticed, as the New York Timesâ Jim Tankersley and Ben Casselman reported recently, because the annualized cut was spread across a yearâs worth of paychecks instead of lumped together at year end.
But whether working families noticed the new money or not, the combined effect of those modest middle-class cuts and the massive corporate giveaways that make up the bulk of the Trump tax lawâs price tag were supposed to load the economyâs engine with high-octane juice. The working theory was that this â2 Fast 2 Furiousâ boom would rain new revenue down on the treasury with such swift thoroughness that the public would neither notice nor care that a large amount of its collective money got handed over to wealthy multinational companies. The cut, its proponents insisted, would pay for itself.
A year on, the tax bill is miles behind the trajectory required to make that promise plausible. The authors of the CRS study calculate that the tax lawâs 2018 performance generated â5 percent or less of the growth needed to fully offset the revenue lossâ in year one.
âMuch of the tax cut was directed at businesses and higher-income individuals who are less likely to spend,â the CRS researchers wrote. âOn the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy.â
That mathematically correct conclusion misses an important wider point about public policy choices. The bill has had a huge effect on what kind of economy we have, if not on the size of that economy as measured in the stats these analysts parse. Inasmuch as the costs of the bill could have been spent on other people if their government had made other choices, the tax law is redistributing wealth upward, providing the wealthy investor class a jolt of money they have no reason to spend.
Everyone else saw a relative pittance â enough money to make a difference to a working family, but a tiny fraction of the public money federal lawmakers chose to give to private companies and their shareholders through these changes â and none of the wider opportunity-sparking growth promised by the people marketing the bill 18 months ago.
Tax cuts that donât pay for themselves are not automatically illegitimate. When such subsidies are bestowed on Main Street economies, they can boost the virtuous cycles of consumer spending that working-class communities need in order to provide a stable economic foundation.
The tax cut former House Speaker Paul Ryan (R-WI) put on Trumpâs desk has instead subsidized the wealthy, just as the GOP intended.
This article was originally published at Think Progress on May 30, 2019. Reprinted with permission.Â
About the Author: Alan Pyke Â covers poverty and the social safety net. Alan is also a film and music critic for fun. Send him tips at: firstname.lastname@example.org or @PYKEAPYKEA