‘Not What We Expected’: Trump’s Tax Bill is Losing Popularity – Heather Long | The Washington Post

‘Not What We Expected’: Trump’s Tax Bill is Losing Popularity

Heather Long | The Washington Post

In a packed arena in Fargo, N.D., this week, President Trump’s most ardent supporters roared with approval when he talked about protecting the U.S.A. borders, beating the Democrats and “respect for our great, beautiful, wonderful American flag.”

When Trump pivoted to the tax bill, his top legislative accomplishment, the crowd clapped — but without the fervor they had shown for many of his other applause lines.

Trump signed the tax cut legislation just before Christmas. Six months later, it is LOSING POPULARITY.      

American families are unsure whether they are benefiting from the tax cut, and small businesses say they are confused by the complex changes affecting them.

A recent poll from Monmouth University found 34 percent of adults approve of the tax cut now, a slide from January when adults were about evenly split between approving and disapproving. And about a third of families say they are better off because of the cuts, according to polls by Politico and the New York Times.

It’s too early to tell whether the tax cut is working, most economists across the political spectrum say.

There has been a clear burst of optimism since the tax cut passed, especially among business owners.

But that optimism has yet to translate into a substantial bounce in business spending on new factories, equipment and technology.

What’s Going Well After the Tax Cut

Supporters of the tax bill point to economic growth as a sign the cuts are working. The U.S. growth rate in the first quarter of this year came in at 2 percent, the best first quarter since 2015, and many independent forecasters anticipate the growth rate will skyrocket to more than 4 percent in the second quarter, something that hasn’t happened in four years.

“Six months ago we unleashed an economic miracle by signing the biggest tax cuts and reforms,” Trump said Friday at an event celebrating the tax cuts at the White House.

The tax bill isn’t the only factor driving the accelerated growth, many experts say, but it is part of the story. The global economy is also doing well, and oil prices have rebounded, driving a resurgence in investment in the United States’ oil and natural gas industry.

What is NOT Going Well — So Far

Critics of the tax bill, which every Democratic senator voted against, counter that the faster growth is likely to be temporary — and that it comes at a high cost.

Most forecasters, including the Federal Reserve, anticipate the growth will peak in 2018 and fall back to normal by late 2019. In the meantime, the tax bill will leave the country more than $1 trillion deeper in debt over the next decade, according to the Congressional Budget Office.

The success of the tax bill hinges on a surge of corporate capital spending. If that doesn’t come through, the Trump Administration is unlikely to get the 3 percent growth it’s predicting for years to come.

Overall non-residential business investment was 10.4 percent in the first quarter, up from 6.8 percent in the final quarter of last year, but most of the increase was driven by intellectual property investment. Spending on equipment actually fell in the first quarter.

“If the tax cut is working, it should show up in investment. And it’s hard to see it in investment,” said Benjamin R. Page, a senior fellow at the Tax Policy Center.

There has also been no acceleration in wage growth. While the White House frequently touts announcements that some companies gave bonuses or pay increases, they were not widespread. Wage growth remains sluggish, as it has for years since the recession, according to the Labor Department.

“The missing piece of the puzzle is wage growth. Yes, we are at full employment, but we are still seeing wage stagnation,” said Aparna Mathur, a resident scholar in economic policy studies at the conservative American Enterprise Institute.

The Windfall for Shareholders

Arguably the harshest criticism of the tax bill is that it’s benefiting one group of Americans a lot so far: SHAREHOLDERS.

The hope was that companies would take their extra cash from the tax savings and invest it in new equipment and items that would make workers more productive and boost pay. But the evidence so far is that big companies have mainly been giving cash back to shareholders.

Stock buybacks hit a record in the first quarter of 2018 ($189.1 billion), surpassing the all-time high set in 2007 before the financial crisis, according to Howard Silverblatt of S&P Dow Jones Indices. Buybacks jumped nearly 40 percent from the final quarter of last year.

Companies are also giving more money to shareholders via fatter dividend payments, which likewise hit an all-time high in the first quarter of 2018. These payments are expected to keep growing.

“For the remainder of 2018, expectations are high for record corporate expenditures in both buybacks and dividends,” Silverblatt said.

Republicans such as Rep. Kevin Brady (Tex.), one of the main authors of the tax bill, argue that buybacks and dividends will fuel growth and investment because shareholders will turn around and pour the money into other projects, including start-ups.

‘NOT What Was Expected’

Trump and Republicans argued that cutting the corporate tax rate from 35 percent to 21 percent and allowing companies to write off more of the costs of their capital spending would unleash a frenzy of business spending, and that in turn would drive up wages as workers become more productive. So far, that hasn’t happened, and surveys of business leaders don’t indicate it’s likely to pick up much more from here.

Morgan Stanley has an index that tracks businesses’ plans for future capital spending. This week Morgan Stanley reported a drop in future plans and declared the United States “past the peak” on capital spending, a worrying sign for those waiting for a pickup.

Similarly, the U.S. Chamber of Commerce and audit firm RSM did a recent survey of 393 businesses and found that 38 percent planned to increase investment over the next three years.

“This is not what we expected,” said Joe Brusuelas, chief economist at RSM.

Trade Fears May be Canceling Out Tax Benefits

Gary Cohn, Trump’s former top economic adviser, has argued that it will take time for the uptick to show up, because companies don’t make these decisions without a lot of thought.

But right now there are a lot of incentives for companies to open their wallets and invest in the future:

The tax cut, strong growth and a growing labor shortage that may cause businesses to want to bring in robots if they can’t find enough workers.

Many business executives say Trump’s trade war is causing them to pause on big investments until they see what happens.

“There’s a huge question on trade,” said Jamie Dimon, chief executive of JPMorgan Chase and head of the Business Roundtable, a business advocacy group. Tariffs “cause rising uncertainty, which could weigh down investment and hiring.”

Cohn has cautioned Trump’s trade moves could wipe out all the gains from the tax cut. It’s a major risk at a time when Trump’s tax cut is still a hard sell to the public.

Correction: A previous version of this story incorrectly reported the level of non-residential fixed investment for the first quarter. It was 10.4 percent.

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  • Clyde Duncan  On 07/03/2018 at 5:24 pm

  • Clyde Duncan  On 07/03/2018 at 5:37 pm

  • Clyde Duncan  On 07/03/2018 at 6:17 pm

    Trump Trade War a Risk to 2.6m American Jobs

    Pro-Republican business chiefs demand reversal of tariffs

    James Dean, US Business | Callum Jones, Trade Correspondent | The Times UK

    America’s largest business group has called on President Trump to reverse course on his aggressive international trade policy before he triggers a full-blown trade war that directly threatens 2.6 million jobs.

    In a rare intervention, the US Chamber of Commerce, which is typically pro-Republican, has launched a campaign against the administration’s protectionist trade tariffs by detailing potential job losses in USA states that were key to the president’s election victory.

    The US Chamber of Commerce said that the economies of Alabama, Michigan, Pennsylvania, South Carolina, Texas and Wisconsin — all Republican states — would be “especially harmed” by retaliatory tariffs.

    The US Chamber believes 2.6 million jobs are threatened by the Trump administration’s trade policies. Retaliatory tariffs have already been placed on about $75 billion of American goods so far.

    Thomas Donohue, chief executive of the chamber, said: “The administration is threatening to undermine the economic progress it worked so hard to achieve. Tariffs that beget tariffs that beget more tariffs only lead to a trade war that will cost American jobs and economic growth.”

    The US Chamber of Commerce represents three million companies, from sole traders to major corporations, and was founded 106 years ago. The group wants the Trump administration to drop plans to slap import tariffs on hundreds of billions of dollars of foreign imports, saying that retaliatory levies from America’s trading partners are already hurting US businesses and consumers.

    Mr Trump’s administration has implemented tariffs on steel and aluminium imports and is considering a 25 per cent duty on vehicle imports.

    In retaliation, the European Union, China, Canada and Mexico have imposed tariffs on American imports, with more to follow this week.

    The EU said on Sunday that it could hit back against proposed US car import tariffs with levies on nearly $300 billion of American imports.

    Liam Fox, UK trade secretary, used a meeting yesterday with Wilbur Ross, the US commerce secretary, to make the case for a UK exemption to American steel tariffs.

    In Texas $3.9 billion of exports in industries that support 3.2 million jobs, including cotton and whisky, were under threat, the group said.

    In Alabama $3.6 billion of exports in industries that support nearly 600,000 jobs, including cars, were at risk.

    In South Carolina, lawnmowers, steel and iron products were among $3 billion exports under threat.

    In Pennsylvania, Michigan and Wisconsin, respectively $1.7 billion, $2.3 billion and $1 billion exports were at risk.

    It also emerged on Sunday that the Trump administration had drafted legislation to give the president the power to impose unilateral tariffs wherever necessary, a power that would effectively allow him to bypass World Trade Organisation rules.

    Experts said the legislation had little chance of making it through Congress.

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