Feb 182019
 

Tax cuts one year later, what happened ? There was a point in early 2018 when big American companies couldn’t help stop talking about the Trump tax cuts. Flush with the projected savings form a $1.5 trillion law, they promised to raise wages, hand out bonuses to workers and invest in big projects. They scored headlines, along with the applause from President Trump. The fawning faded quickly. As time went on, those same companies starting spending the majority of the tax cut on stock buybacks. Goldman Sachs analysts have predicted that the total amount of buybacks across the country could top $1 trillion for the full year.

Some workers did reap rewards from the law, as many companies followed through on–and even exceeded–their promises to raise wages and pay bonuses. yet other firms have announced layoffs, despite reporting higher profits and billions of dollars in tax savings. While the long term effects remain to be seen, the evidence so far doe snot suggest the sustained investment and productivity growth boosts that Republicans and supply side economists predicted. Many economists, including those at the Federal Reserve, are cutting their growth forecasts for 2019, in part because of the waning effect of the tax cuts. So the tax cuts one year later have not been as impressive as once thought.

Corporate earnings over the last several quarters show why companies were such enthusiastic cheerleaders of the tax cuts. By cutting corporate rate to 21 percent from a high of 35 percent, the law has reduced the effective tax rate that many companies pay. That has fueled after tax corporate profits, which rose nearly 20% in the third quarter from the previous year. The tax law was clearly a driver of that increase–because profits before taxes rose at a much slower rate. In the last half century of the American economy, it’s been rare for the after tax profits to grow so much faster than before tax profits.


  •  02/18