May 142019
 

Trump’s tax cuts changed economy. Americans have been getting used to the new Tax Cuts and Jobs Act slowly but surely. Some if its effects are already visible, and some of them will take months, or even years, to  understand. After all, economists are still publishing studies about the effect of the last comprehensive tax overhaul back in 1986, singed by Ronald Reagan. Here’s what we can and can’t say about how President Donald Trump’s tax cuts have impacted the economy so far. First off, Corporate taxes fell off a cliff, fueling deeper deficits. One the central features of the Tax Cuts and Jobs Act was a drop in the corporate income tax rate, from 35% to 21%.

Even though plenty of companies never paid that full rate because of various exemptions, the decrease still took a big bite out of corporate tax collections. They plunged from a seasonally adjusted annual rate of $264 billion in the fourth quarter of 2017 to $149 billion the next, when the new rules went into effect, and they havn’t bounced back. Corporate income taxes make up only a small slice of the federal government’s overall tax revenue, and have declined as a share of the economy from their post-World War 2 heights in 1951. However, corporate tax revenue still tends to increase when the economy is doing well. This is the first time corporate taxes have taken such a hit when the economy is not in recession. Trump’s tax cuts changed economy.

Second of all, the short term economic boost is slowly fading. Most economists forecast that the tax cuts, along with a boost to military spending, would goose the economy initially. The CBO estimates that aobut 0.3 percentage points of the 2.9% growth in gross domestic product in 2018 can be attributed to the tax cuts. Part of that came from business investment in research and development, new factories and equipment, possibly encouraged by a provision that allowed businesses to immediately expense capital expenditures, rather than expense them gradually over several years. Business investments grew 8.4 % from the fourth quarter of 2017 to the fourth quarter of 2018. That’s a good sign because better factories, equipment and tools are supposed to boost productivity, which in turn allows workers to make more money.


  •  05/14