Not only did President Trump’s pandemic economic plan of massive tax cuts and world trade wars fail to deliver on the promised boost in growth and national investment, it now appears to have left the US more vulnerable to the devastating financial impact. of the coronavirus outbreak.
Even before the pandemic pushed the United States into a recession, the benefits of Trump’s tax and trade policies were largely offset by the costs of the national debt and the damage to US foreign relations – challenges now magnified by the health crisis.
Individual tax rates were lowered until 2025, but by far the most costly feature of the law was a permanent cut in the US corporate income tax rate from 21% to 35%. It was argued that the lower corporate tax rate, coupled with the elimination of taxes on most foreign business income, would make the US more competitive globally. With tax savings, companies would increase national investments.
American multinational companies would repatriate cash hidden abroad and invest domestically and discourage capital flight to destinations outside the nation, ultimately benefiting workers in the United States.
But economists widely agree that the tax cuts, while providing a small boost to growth, particularly in 2018, failed in their core goals.
Rather than increasing capital spending and investments or moving away from offshoring, many American companies focused on increasing dividends and repurchasing their own shares, which primarily benefited high-income investors. The buybacks reached record levels in 2018 and remained strong in 2019.
Far from taking a leap forward, the US economy continued its long, but modest recovery from the Great Recession of 2008-09. Economic growth rebounded in 2018 to 2.9% but fell again to 2.3% in 2019, approximately the average development in the last decade and well below the 4% promised by Trump and some of his officials.
On the income side, some workers saw gains, but for most, it was a continuation of the long-term stagnation of personal income and financial security.
“What really slowed investment was not the cash constraints of companies paying too much tax, but rather this general weakness in demand,” said Kimberly Clausing, an expert in economics and tax policy at Reed College.
Regarding the mitigation of investments abroad, research has shown that the opposite happened. The tax review included several new provisions that actually made it more desirable for US multinational companies to invest in tangible assets abroad because that would give them a greater tax exemption.
From the beginning, many economists questioned the wisdom of enacting deficit-financed cuts at a time when the economy was growing at a steady rate.
Almost always in the past, the federal government used massive tax cuts only during recessions, when they could give the economy a much-needed increase in consumer and business spending.
The tax cuts not only failed to deliver the benefits promised by Trump and congressional Republicans, but they left the country with a huge budget hole that was made much bigger by the economic shock of the pandemic that has occurred once in a century.
“It was a big mistake, something we are seeing now because right now we have less fiscal margin than we would have to combat this current crisis,” emphasized Marc Goldwein, senior director of policy for the Committee for a Responsible Federal Budget.
He pointed out, for example, that it is no longer an option to offer certain tax incentives for companies to invest and stimulate the economy, such as total spending for the purchase of new plants and equipment because it was already included in the 2017 law.
Goldwein estimated that without the 2017 tax cuts, the country would have an additional $ 500 billion to combat the current economic and health crisis. While that may not seem like a lot compared to the $ 3 trillion already approved in pandemic aid by Congress, it will make a difference in the future, he said.