The bullhorn of negativity has been unrelenting.
Nancy Pelosi led the parade with claims that the tax cut was the coming of “Armageddon,” called them “Crumbs,” and the “worst bill in the history of the United States Congress.”
Other infuriated Democrats took the baton and sounded the alarm. Cory Booker said, “irresponsible, reckless, unjust, and just plain cruel.”
Snippets from other Democrats: “Republicans will rue the day they passed”, Chuck Schumer; “highway robbery,” Bernie Sanders; “a heist,” Elizabeth Warren.
With the tax cut effective January 2018, what can we say about its success or failure?
Democrats say that it will drive up our massive national debt, make the rich richer and corporations will use the extra profits to buy back stock and not reinvest in capital improvements.
President Donald Trump’s strategy was to reduce taxes across the board to spike the economy. He believes the U.S. can achieve annual GDP growth of 3-4 percent. This claim was considered laughable, given the difficulty of President Barack Obama to achieve even 2 percent growth during his second term.
The Congressional Budget Office (CBO) projected massive deficits even if Trump achieves an average of 2.5 percent GDP annual growth to the end of his term. But the CBO has not very accurate in its projections.
The immediate reaction from the business world was significant, no matter how much it was downplayed and derisively called a “scam,” and has been overwhelmingly positive.
In the first few months, it has been estimated that between 5-6 million workers got some type of new benefits to include bonuses, salary increases, improvements in infrastructure and benefits to include medical, education, job training costs, and even such things as 401K contributions, child adoptions, maternal and paternity leave.
The fact remains that nearly all full-time workers have received payroll tax cuts and/or related benefits. Even part-time workers get immediate benefits with increases in the minimum wage. The nation’s leading private employer, Walmart, led the way in wage increases.
But as important as all this is, the real advantage is yet to be confirmed. Yes, we have anecdotal evidence of positive movement, but we will need to wait for an update early next year about just how much impact this tax law will have on corporate investments in plant, equipment and innovation.
We don’t know how much stock buybacks and trillions in cash repatriation from overseas accounts will affect results.
In one industry, banking, the effects are dramatic. While Democrats are always attacking “big banks,” the decline of banks has been disastrous. In 1984, the U.S. had over 18,000 banks. Today, they are down to 5,600. Finally, after hitting bottom, they are adding new employees in 2018.
But another significant indicator is wage growth. While the Republicans crow about increased corporate profits, employee bonuses and less taxes for the taxpayer, the real measure of success will be whether stagnant and declining salary growth can be affected long term. Wages have stalled since 2010.
If the tax cut fails to affect wage growth, then the Democrats will scream bloody murder.
Of course, many argue that the influx of so many illegal immigrants are keeping wages down. Businesses want cheap labor and support this flow of new workers.
Even so, it looks like the wage growth is inching up ever so slowly. Some reports reveal plus 4-5 percent increases in wage growth rather than in the middle 2 percent range.
Of course, everyone has seen the constant high levels of business and consumer confidence in repeated polling. Small businesses are extremely positive about the tax cuts as it directly impacts their profits, critical for the long-term survivability of any size business.
Another critical measure is the GDP growth track. China hit a low point at 6.8 percent in 2017 for GDP growth, but for the first five months of 2018, they have a $100 billion surplus with the U.S.
For the past decade we have seen U.S. annual growth averaging around an anemic 1.5-2.5 percent growth. It was 1.6 percent in 2016 and 2.3 percent in 2017. However, it is remarkable that the GDP growth has been on an increasing staircase each quarter since Trump was elected.
For the Fourth Quarter of 2018 it may reach an estimated 3.8 percent and trending positive. Yet, even this performance could move higher if tariffs and trade restrictions are resolved, North Korea signs a peace treaty and denuclearizes the peninsula, plus trade agreements with China, NAFTA, TPP members and the EU culminate in new, better deals.
The expectation is that with consistent GDP growth well above 3 percent, the economy will avoid driving up Federal deficits, currently increasing, while giving most Americans a feeling of some level of new prosperity.
If it fails, it will be an economic disaster.
If it succeeds, it will make Democrats catatonic.
It will also guarantee Trump’s re-election.