Liberal Forum

Blackvegetable » 30 Sep 2021, 5:46 pm » wrote: ↑

30 Sep 2021, 5:46 pm

Let's keep it objective

His signature initiatives

His tax cut - a predictable failure.
​​​

His trade war - another predictable failure

The Wall - rejected even by his own party, stole the money from veterans - unconstitutionally.

Objective enough?

 Did the Trump tax cuts work? The answer may not be what you think.

AEIdeas

May 19, 2021 By James Pethokoukis

A common justification for raising corporate tax rates is that cutting tax rates back in 2017 didn’t work so well. So whether for reasons fiscal or egalitarian, it’s good policy to reverse some or all of President Trump’s Tax Cuts and Jobs Act.

Certainly a cursory glance at the statistics — which is what the “they didn’t work” claim is based on — shows GDP growth, productivity, and business investment about the same heading into the pandemic. Not much sign of the sharp and sustained surge that some proponents promised. President Trump, for instance, said the tax cuts would be “rocket fuel” for the economy. But as The Wall Street Journal concluded in early 2020: “Early growth in business investment seems to have faded; overall economic growth rose before pulling back again. Cross-border investment patterns have changed only modestly.” (It should be noted that the most recent productivity stats show 2017 and 2018 did see an uptick in the pace of productivity growth, though hardly a boom.)

A couple things to keep in mind, however: For starters, many GOP politicians and pundits argued for the tax cuts in a way most economists didn’t. While the former said the tax cuts would radically alter investment incentives and unleash a flood of corporate cash into the domestic economy from overseas holdings, the latter made arguments more like this one from AEI economist Alan Viard [bold by me]:

Reducing the tax rate on a company’s taxable income gives it an incentive to earn more taxable income by expanding their factories, equipment, and other business capital in the United States. It is in a company’s self-interest to expand their U.S. investments because the rate cut lets them keep more of the profits of those investments. With more capital augmenting their output, American workers become more productive and therefore more valuable to employers. Companies throughout the economy then compete against each other to hire more workers, bidding up their wages. These dynamics — the expansion of the capital stock and the resulting increases in productivity and wages — are likely to play out over a number of years after the rate cut takes effect.

Accurate, but less catchy. But the point here is that the most common attack on tax cuts is really addressing a political argument rather than an economic one. Moreover, tax cut critics almost always ignore the impact of Trump’s other big economic “achievement” — the trade wars. As AEI economist Kyle Pomerleau puts it: “Trump decided to run two experiments at the same time: A tax cut and a trade war. And those are somewhat offsetting. CBO thinks they’re almost entirely offsetting in some years. So just looking at the economy, it looks like nothing happened, so it is hard to come to any conclusion from just observing.”

One reason the trade wars may have undercut the tax cuts was because of the massive business uncertainty they created. In a new analysis by Hites Ahir, Nicholas Bloom, and Davide Furceri, the researchers note the following: 

…uncertainty related to US foreign policy and trade negotiations—including with Mexico, Canada and China—has been a key source of uncertainty around the world since the fourth quarter of 2016, contributing to about 20 percent of the increase in global uncertainty from historical mean since 2016. This rise in trade tensions and its implication is well documented. But recently global spillovers from this source of uncertainty have become close to zero.

And as economist Steven Davis — a co-creator of the Economic Policy Uncertainty Index with Bloom and Scott Baker —  described the effect of the trade wars back in 2018, companies faced “a tremendous, Trumpian upsurge in anxiety and uncertainty.”

In other words, the conclusion that the Trump tax cuts failed should not be offered with anywhere near the level of certainty that it frequently is. Indeed, that the Biden administration is not proposing a complete rollback suggests even it sees some value in them.