Reuters President Donald Trump hasn’t clapped much for one thing he’s done.
President Donald Trump, you may have noticed, likes to take credit. For economic growth. For defeating Isis. For steel mills opening up, for winning a World Cup bid, for boosting NFL revenue in Canada.
But there’s one thing he’s basically silent about, and it’s had a big impact, and it wouldn’t have happened without him.
That’s the Bipartisan Budget Act of 2018, the big spending bill that, as the name implies, received votes from both Democratic and Republican lawmakers.
This isn’t an argument that Trump used particularly deft lobbying to get the legislation passed. Still, it wouldn’t have happened without Trump. We know that because, for six years, Republican lawmakers were unwilling to similarly bolster spending under President Barack Obama.
The legislation enacted in February increased spending by $296 billion for the next two years, much of it on defense, ending the stranglehold on fiscal spending. It’s hard to imagine it passing under President Hillary Clinton.
It’s had a real impact. The Wall Street Journal’s Kate Davidson took apart the data recently to show how government spending has been what’s behind the pickup in economic activity.
Take a look. Durable-goods orders are up across the board, but they’re on fire for defense — a 22.7% increase year-to-date for defense capital goods, and a 19.3% improvement in defense aircraft and parts. While still strong, orders are up 8% this year excluding defense.
To anyone paying attention, it’s clear the spending bill has added as much to the economy as the more publicized tax cuts. The Congressional Budget Office, for instance, has long estimated the economic impact to be the same.
But maybe the spending increases have benefited more. Companies quite clearly have spent tax cut savings predominately on stock buybacks — $786 billion, according to a new tally released Wednesday by the Americans for Tax Fairness —which at some point will filter back into the economy, but slowly (and some will leak out to foreign shareholders).
Survey after survey shows that consumers aren’t even aware of the tax cuts they’ve received. The personal savings rate has drifted down in recent months, but just to last year’s levels.
Wait, you say, what about the impressive consumption numbers in the third quarter? That seems to reflect the continuation of jobs growth. Payrolls — that is to say, employment as well as hours and pay — tracks extremely closely with consumer spending. (No big reveal there.)
Aren’t tax cuts what’s behind the jobs growth? It doesn’t appear to be the case, and jobs growth has held to a strong but steady range since the tax cuts.
Ernst & Young did an analysis of major industry groups to see which benefited the most from the Tax Cuts and Jobs Act — the industries with tax liability reductions between 16% and 23% were services; agriculture, mining and construction; and wholesale and retail trade.
So, how’s jobs growth in those sectors? For mining, logging and construction, year-over-year jobs growth has been 4.9% in September (oil-field services and residential construction, mostly); 2.7% for professional and business services; and a dismal 0.7% for wholesale and retail trade. Basically, those numbers suggest the broader trends in those industries are, not surprisingly, what’s causing companies to hire or not hire, and not the tax cuts.
That’s not to say that the corporate tax cuts will at a later date make a real impact. Companies in the future may make decisions to invest because the return will be better, since the tax rate will be just 21% instead of 35%. Trump and the White House may have got trapped by their own rhetoric that the tax cuts already were having instant, rip-roaring effects.
Similarly, Trump doesn’t seem to even like the additional spending, recently calling on his Cabinet to prepare spending cuts of 5% next year. (Never mind that Congress ignores Trump’s budgets anyway.) Congressional Republicans, many of whom owe their livelihoods to the anti-spending tea-party movement, feel similarly.
And Democrats, for their part, have been reticent to signal that they’ve cooperated with the president on anything.
There’s an argument to be made about the future impact of running up the deficit, where government spending directed and whose taxes get cut, that has real consequences. But in the short term, a dollar spent on midnight basketball equals a dollar spent on a cruise missile equals a dollar cut in Jared Kushner’s taxes.
It’s funny to have an election where even the loudest of loud-mouths aren’t talking about such a key decision.
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