Oops. Trump’s tax cuts don’t seem to be helping working Americans
by digby
Noah Smith at Bloomberg writes:
Wages were supposed to rise after Trump’s tax cuts. Instead, they’ve fallen https://t.co/LactYzTE7a via @bopinion pic.twitter.com/qUdfYQK1En— Bloomberg (@business) July 21, 2018
A few months ago, I cautioned that Americans should be patient before deciding what effect President Donald Trump’s tax cuts have had on the economy. It takes a while for companies to make investment decisions, more time for those decisions to be implemented and even more time for the resulting changes in labor demand to bid up workers’ wages. It therefore takes months or even years before the full impact of the tax bill will be known.
But it’s also important to evaluate policies like Trump’s tax reform as quickly as possible. Not only is this critical for deciding whether to change course, but as more time goes on, the effects of a policy can become harder to assess. Two years from now, plenty of other things will have had time to affect the economy, including Trump’s trade war and natural economic forces. And now that the tax cut has been in effect for a half-year, the results are starting to trickle in.
First, the tax reform hasn’t yet resulted in appreciably higher wages for American workers. Real average hourly compensation actually fell in the first quarter after the tax reform was passed.
Official data for the second quarter isn’t available yet, but private data isn’t looking encouraging. PayScale’s index of real wages shows a dramatic deterioration in the period.
But perhaps two quarters is too early to expect results in this area. A better gauge might be business investment — if the tax reform is spurring businesses to increase capital expenditure, as it was supposed to do, then wage increases will probably follow in due course.
Some have expressed dismay that stock buybacks seem to have taken precedence over boosting capital investment. Since the tax cuts passed, companies have been using buybacks to return record amounts of cash to shareholders — more than $700 billion in the first two quarters. That naturally raises the possibility that companies don’t have good projects to invest in. If companies pass their tax windfall on to shareholders, those investors can choose to react by increasing consumption — meaning more of society’s resources go to the wealthy. They can also choose to invest the money in other companies with better growth prospects — but if those companies are also reacting by returning the money to their shareholders, rather than making capital expenditures, not much is getting accomplished.
Ivanka’s doing well I’m sure.
By the way, Trump keeps filing extensions for his 2017 tax return. Why, I wonder?
Not that it makes any difference:
Trump said he couldn’t release his own returns because the IRS was conducting an audit of his finances. IRS officials said any person can release the documents, whether they’re being audited or not.
Since the president’s tax returns are automatically audited by the IRS, Trump could use the same excuse for the duration of his term, The New York Times reported.