The Economic Effects of the 2017 Tax Revision: Preliminary Observations


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This is a few months old...but it just came to my attention.

Hey Gilligan....try, if your Ivy League Lite education will allow, to read this....maybe you will, finally, learn something.

The Economic Effects of the 2017 Tax Revision: Preliminary Observations

From page 2 of 23:

In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run. Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision.

Although significant amounts of dividends were repatriated in 2018 compared with previous years, the data do not appear to show a significant increase in investment flows from abroad. While evidence does indicate significant repurchases of shares, either from tax cuts or repatriated revenues, relatively little was directed to paying worker bonuses, which had been announced by some firms.

Although the legislation contained a number of provisions that discouraged inversions (shifting headquarters of U.S. firms abroad), these inversions had apparently already been significantly slowed by regulations adopted in 2014, 2015, and 2016.
From pages 6-7:

Because the economy was at full employment and most of the tax cut went to businesses and higher-income individuals who are less likely to spend the increases, a small demand-side effect would be expected
. Demand-side effects are transitory, whereas supply-side effects are permanent.
According to Gilligan's Ivy League Lite educational background the rich spend tax cuts. According to every other institution's analysis, the poor spend tax cut money the rich buy stocks or bonds.

From page 8:

The 2.9% annual growth rate for 2018 was higher than the 2.2% growth rate in 2017 and the 1.6% growth rate in 2016. In previous years, output grew by 2.9% in 2015 and 2.5% in 2014, thus the increase in growth is in line with the trend in growth over the period examined in Figure 1. Forecasters had already projected an increase in growth rates in most cases that was similar to CBO’s. In addition to the effect from the tax cuts, there was also some stimulus due to the increase in spending enacted in the Consolidated Appropriations Act of 2018 (P.L. 115-141) and the Bipartisan Budget Act of 2018 (P.L. 115-123). Growth may have also been negatively affected by tariffs.
Gee, now where have I read prior to this that most economists were predicting an uptick in GDP growth rates before the Trump came into office and the tax cuts were passed? Where was that...oh yeah...I remember...everywhere but on right wing propaganda sites.

The data appear to indicate that not enough growth occurred in the first year to cause the tax cut to pay for itself.

Page 9:

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.16The 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.
Understand that as the economy slows in the second half of 2019 and potentially into 2020, the positive effect of stimulus would be more helpful. But we don't really have the ability to do any more stimulus. Trump and the R's wasted it.

page 12:
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.
Gilligan will still come on here and claim that the tax cuts were targeted to the average working American.

page 14:

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.
page 15:

The Department of Labor reports that average weekly wages of production and nonsupervisory workers were $742 in 2017 and $766 in 2018.35Wages, 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.
page 17:

Again, many factors can affect net capital inflows, including domestic borrowing by the government and domestic saving, but the evidence does not suggest a surge in investment from abroad in 2018.
So no...repatriated cash from abroad was not reinvested in new plants and also was not paid out to workers in the form of higher wages. It was paid out in dividends.

page 18:

Increased funds, whether accessed from abroad or through tax cuts, could be used in several ways: investment, paying down debt, increasing wages, paying wage bonuses, paying dividends, or repurchasing shares.

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.41With US employment of 157 million, this amount is $28 per worker.42This amount is 2% to 3% of the corporate tax cut, and a smaller share of repatriated funds.43It 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.44The 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 2018.45A similar share of repurchases happened in 2004, when a tax holiday allowed firms to voluntarily bring back earnings at a lower rate.
Despite all the posts by Gilligan and Comrade GURPS, despite all the right wing website cut and pasting or Fox News pronouncements, companies did not use the tax cuts to raise wages. Every one of you ignorati types was told this was how this would work. Not one of you believed it. Why is beyond anyone with any level of intelligence. Even when the data was coming out about how much was going into dividends and all claimed it was Fake News!

You all can go read the document in total. You won't...of course, but you can.

If Trump really wanted to Make America Great Again....if Paul Ryan, Mitch McConnell and the Rs really gave a crap about average American family...they would have spent those trillions on a massive infrastructure rebuild that would have lasted the better part of a two term Presidency. But no, the trillions were earmarked to repay those who supported the 2016 political victors....and not one of you understands this...