A”whiter shade of pale” Mike Pence is in Phoenix today for the GOP tax scam tour. Vice President Mike Pence visits Phoenix today on tax policy tour:
Arizona Republican U.S. Rep. Andy Biggs and local business people are expected at the “Tax Cuts to Put America First” gathering at a Tempe hotel.
Maybe an enterprising reporter will ask Pence about Senator Marco Rubio’s view of the GOP tax scam. The Economist reports, Marco Rubio offers his Trump-crazed party a glint of hope (snippet):
“There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,” he says. “In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.”
Arguing that the tax bill’s corporate tax rate cuts aren’t benefiting the average worker is exactly the opposite of what VP Pence will say today about the GOP’s only major legislative “accomplishment.”
For once, “Little Marco,” as Pence’s boss denigrates him, is right. The New York Times reported this week, Investment Boom From Trump’s Tax Cut Has Yet to Appear:
Republicans sold the 2017 tax law as “rocket fuel” for American investment and growth, saying that corporations — flush with cash from lower tax rates — would channel money back into the economy by building factories and offices and investing in equipment, which would help companies grow and provide winnings for workers.
Economists say that may happen as companies readjust their spending plans over the coming months to take advantage of the new law, and they note that it is too early to tell how much the tax law will spread into the broader economy.
But, so far, hard evidence of such an acceleration has yet to appear in economic data, which show more of a steady investment roll than a rapid escalation. And while there are pockets of the economy where investment is picking up — among large tech companies and in shale oil business, for example — corporate spending on buying back stock is increasing at a far faster clip, prompting a debate about whether the law is returning money to the overall economy or just rewarding a small segment of investors.
Data on the gross domestic product, released Friday, showed that business investment grew at a 6.1 percent annual clip during the first three months of 2018, down from 7.2 percent during the first quarter last year. Excluding oil and gas investment, which is particularly volatile, the investment pace grew slightly over the past year.
While the first-quarter investment numbers were more robust than they were in 2015 and 2016 — when a bust in oil prices curtailed a large chunk of American corporate spending — they weren’t radically different from the roughly 5 percent rate of growth for business investment that has prevailed since 2010.
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Analysts were cautious in drawing conclusions.
“Even regardless of the tax plan kicker, we would have seen a pickup in business investment,” said Keith Parker, head of United States equity strategy at UBS. Capital spending, he said, “typically follows profits with a lag.”
Scott Greenberg, a tax analyst at the conservative Tax Foundation, warned that it was “always difficult to identify an economic trend from just one quarter’s data.”
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While overall business investment in the American economy was up 6.1 percent in the first quarter, business spending by the larger corporations included in the Standard & Poor’s 500-stock index — as measured by their announcements of capital expenditures so far this earnings season — is up 23.5 percent from the first quarter of 2017, according to S&P Global Market Intelligence. That would be the fastest pace since 2012.
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But with roughly a quarter of the companies in the S.&P. 500 having reported first-quarter results, their spending on buybacks is even higher, up 43 percent from the first quarter of 2017, to $43 billion, according to data from Howard Silverblatt, an analyst at S&P Dow Jones Indices.
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Traditionally when companies have more cash than they think they can invest productively, they return it to shareholders either by paying them cash dividends or by going into the market and repurchasing shares. Those buybacks tend to push the price of a stock up, making shareholders wealthier, at least on paper.
Republicans, and some Democratic economists, say this can help the economy, if those shareholders sell their stock and then use their profits to make other investments. But critics argue that buybacks disproportionately benefit the wealthy — the richest 10 percent of Americans own 84 percent of all stock — and executives who are often compensated with shares.
Boeing said it had bought back $3 billion worth of its stock in the first quarter. (It expects to buy $15 billion over the next two years.) Facebook expanded its plans to buy back its shares to the tune of $9 billion. the appliance maker Whirlpool said it would sell its Brazilian refrigerator compressor business for roughly $1 billion, and then use that money to buy its own shares. The railroad operator CSX said it had bought back more than $800 million in shares in the first quarter, as part of plans to buy $5 billion in shares by the first quarter of next year.
As they anticipated a windfall from tax cuts, the nation’s banks increased their pace of buybacks by more than 50 percent last year, to $77.5 billion from $51 billion in 2016, according to data compiled by S&P Global Market Intelligence. The 10 largest banks, led by JP Morgan Chase and Citigroup, accounted for 70 percent of those buybacks.
Republicans have highlighted the buybacks as a boost for the economy, saying they will put money in the hands of investors who will find productive and widespread ways to use it. Many Democrats say those buybacks undermine Republican claims about the tax law and prove the overhaul will reward only corporations and the wealthy.
“The whole theory was to lavish corporations and the already wealthy with tax cuts, and maybe the benefits will trickle down to everyone else,” Senator Chuck Schumer of New York, the minority leader, said in a floor speech in April. “We’re already seeing the balloon burst on that idea, as corporations dedicate an enormous percentage of the tax savings to stock buybacks, and only a sliver to worker compensation.”
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A survey by the National Association of Manufacturers in April found record-high expectations among members for capital investments this year. Historically, that survey is a strong predictor of future investments, though over the past two years actual investment has underperformed what the survey predicted. A survey by the National Association for Business Economics also finds capital spending expectations rising from a year ago — but two-thirds of respondents said the new tax law did not cause them to change hiring or investment plans. Morgan Stanley said Monday that its Capex Plans Index for future capital expenditures fell slightly in April, from what had been a record high.
Verizon, in its quarterly earnings report last week, said it had increased capital expenditures to $4.6 billion in the first quarter, up $1.5 billion from the same period in 2017. But the company plans to stick to its target of spending at most $17.8 billion on investment this year — a level that has not budged much for the past four years.
Economist Paul Krugman of the Times adds, How’s That Tax Cut Working Out?
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’s 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.
So how’s it going? Politically, the tax cut is a damp squib: Most voters say they haven’t seen any boost to their paychecks, and Republicans are barely talking about the law in their political campaigns. But what about the economics?
You might be tempted to say that it’s too early to tell. After all, the law has been in effect for only a few months, and we got our first look at post-tax-cut economic growth only last week. But here’s the thing: To deliver on its backers’ promises, the tax cut would have to produce a huge surge in business investment — not in the long run, not five or 10 years from now, but more or less right away. And there’s no sign that anything like that is happening.
Let’s talk about the economics here.
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’s no indication of such a bump in the first-quarter numbers, which were underwhelming). But if you want to boost overall spending, you don’t have to give huge tax breaks to corporations. You could do lots of other things instead — say, spend money on fixing America’s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers.
Furthermore, any short-term boost will probably be quickly squelched by the Federal Reserve, which believes that we’re 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.
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?
It never made sense to believe that corporations would immediately share their tax-cut bounty with workers, and they haven’t. 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.
The real logic behind corporate tax cuts is that they’re 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.
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’s wildly optimistic predictions aren’t just out of the ballpark, they’re in another universe. Still, to be fair, that’s not a question on which the data have had time to speak.
But the other, equally important question is, how long is the long run? As Greg Leiserson of the Washington Center for Equitable Growth points out, “every 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.” A tax cut that might significantly raise wages during, say, Cynthia Nixon’s 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.
To get major wage gains before, for example, the 2024 election — never mind 2020 — we’d need to have a huge near-term boom in business investment, mainly financed by inflows of capital from overseas. I mean really, really huge. And there’s no sign that this is happening.
True, business investment as a share of G.D.P. is up slightly over the past year, but it’s still well below its level before the financial crisis — let alone the heights it reached in the 1990s. Is it just too soon to expect results?
Are businesses getting ready to ramp up investment, so that we’ll see them laying out the big bucks in the near future? Not according to a survey by the Federal Reserve Bank of Atlanta. 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.
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.
You might think that the G.O.P. would eventually learn something from this experience, realize that tax cuts aren’t magical, and come up with some different ideas. But I guess it’s difficult for a man to understand something when his campaign contributions depend on his not understanding it.
Finally, there is this analysis from Mark Sumner: Growth, down. Stock market, down. Optimism, down. The tax cut boost to the economy, non-existent.
Main Street’s confidence in the stock market is crumbling at the fastest pace since at least 1987. …
Just 33% of people polled by the Conference Board this month expected stock prices to rise over the next year.
After hitting a peak in January, the market has dropped more than 2,500 points. The result has been a lot of nervous 401K owners eyeing shrinking retirement funds. Though it’s not as if some people aren’t doing very well.
Big banks just received the first installment of benefits corporate America will reap from the new federal tax law. The haul: more than $2.5 billion.
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Despite Trump’s ecstatic predictions of rocket-like growth if we only passed a tax cut giving 83 percent of benefits to 1 percent of Americans, things haven’t been quite as rosy as promised.
“There has been a general downward drift and the quarter is looking a little softer than expected,” said Ethan Harris, head of global economics research at Bank of America Merrill Lynch in New York. “The effects of the tax cuts build very slowly as the year unfolds. We need more time for the fiscal stimulus to show up.”
Wall Street is sure this slowdown is temporary. After all, Americans are seeing “fatter paychecks.” so they’re bound to start spending. Any day now. Any day. Especially when they realize that most Americans got less than $20 per paycheck.
And that $20 is looking smaller and smaller as savings shrink and the cost of living increases.
Not only did predictions about the overall economy come in below expectations, but wage growth has also slowed since the tax cut for billionaires was voted in. In the meantime, the rate of inflation for the last six months has increased to the highest in seven years, swallowing the modest gains in salaries and making any of those one-time “tax cut bonuses” seem vanishingly small.
Average Americans have found themselves looking at higher prices, a slowing job market, slowing wage increases, and declining money in their retirement funds. The combination is taking a little bit of spark out of predictions about where we go from here.
The Atlanta Fed’s tracking estimate, which is closely followed on Wall Street, has plunged from 5.4 percent on Feb. 1, a forecast highlighted at the time on Twitter by Trump supporters including Anthony Scaramucci, who briefly served as White House communications director. Kevin Hassett, chairman of Trump’s Council of Economic Advisers, has also praised the accuracy of the bank’s tracker of gross domestic product.
Sorry, Mooch. The latest forecast is a measly 2.0 percent. But how can this be? America’s bankers and Wall Street investors are wallowing in massive cuts. Corporations are practically tripping over money. Why don’t they raise worker pay? Why don’t they hire more people?
Because it doesn’t work that way. It never did. And voters pretty much realize that. Even Trump’s base.
Welcome to Arizona, Mikey. We’ve got your number on your phony GOP tax scam.