With the 2018 midterms barreling towards us, there probably won't be any more major bills coming out of this Congress. Its legacy will be the tax overhaul passed in December of 2017. As far as reasons for re-election, that's what Republicans will have to point to.
Unfortunately for them, those massive tax cuts are proving a total dud.
The tax cuts had two selling points. First, while the bulk of the cuts would go to the wealthy and business owners, the idea was this would spur more investment. That would lead to more jobs and higher wages for everyone. Second, the package also included cuts and benefits that would help out people across the income spectrum.
Let's take each point in turn.
A smattering of corporations have announced pay hikes and bonuses since the tax cuts went into effect. In February, CNN tallied it up to roughly $6 billion in new money going to workers. But the new payouts to shareholders, particularly in the form of stock buybacks, announced in the same period? $171 billion and counting.
Nominal wages are also still on the same anemic growth path they've been on since the recovery from the Great Recession began. They show absolutely no reaction to the tax cut. Once you adjust for inflation, hourly wages of blue-collar workers who aren't in management positions actually haven't budged since President Trump took office.
Now, defenders claim the buyback flood is actually a sign the tax cuts are working as advertised. Under bog standard free-market theory, buybacks and shareholder payouts just take money out of less productive endeavors so it can be invested in more productive endeavors. To asses the tax cuts, you have to track where the money goes next, after shareholders get their payday.
Well okay, fair enough.
The Commerce Department regularly keeps track of new capital goods orders, and those actually fell slightly right after the tax cut passed. The numbers then recovered, but only enough to put them back on the same trend line they were on before the tax cuts. The same goes for small businesses: The percent planning a new capital investment in the next three months didn't even twitch in reaction to the tax overhaul. Once again, they're still on the same modestly upward trend that started with the post-2008 recovery.
Just looking just at these numbers, you'd never know the tax cut happened.
"Since the outlines of the tax cut had been known since September, businesses had plenty of time to plan how they would respond to lower tax rates," economist Dean Baker wrote. "If lower rates really produce a flood of investment we should at least begin to see some sign in new orders once the tax cut was certain to pass."
Everyone should've seen this coming. In the last few decades, the financial markets have evolved from a mechanism for allocating investment into one that liquidates jobs and productive activity and spits the cash out to the wealthy. Corporate profits have been booming for years even as rates of business investment collapsed. Just in 2014, shareholder payouts pumped $1.2 trillion into financial markets, but only $200 billion was recycled into new investment.
The tax cuts are ultimately just another way to shower corporations with bigger profits. If that was going to lead to more investment and job creation, we should've seen it years ago.
What of the tax breaks for American families?
Even if the tax cuts don't spur investment, they could put more spending money in Americans' pockets, and boost job creation that way. Or buy the Republicans more goodwill with voters, at the very least.
But when Politico asked voters in February whether they noticed a pay uptick thanks to the tax cut, only 25 percent said "yes." Half said "no." The rest simply didn't know or didn't have an opinion.
Again, this isn't surprising once you run the numbers. Former Treasury Department economist Ernie Tedeschi worked out how the amount of income American families bring in every two weeks should change in response to the GOP's tax package: A third of families will either lose money or see no change. Another 22 percent will only see an extra $1 to $20 every two weeks. Another 19 percent will only see an extra $20 to $50.
Here's a simpler, better-labeled chart making the same point. pic.twitter.com/4GtmSc3w1O
— Ernie Tedeschi (@ernietedeschi) April 3, 2018
And that's total income for families, meaning a meager increase is often split between two spouses' paychecks.
It's little wonder few people are noticing it.
Of course, this whole critique ultimately takes Republicans at their word; that they really did mean for the tax overhaul to increase jobs and wages and put more money into working families' pocketbooks. Maybe we shouldn't be so trusting.
The Republicans had to rely on a procedure called reconciliation to get the tax cuts past the Senate filibuster. And reconciliation requires bills to be deficit neutral after the first 10 years. The GOP found enough tax hikes to offset the cuts for corporations and the wealthy, making them permanent. But not the tax breaks for families, which are scheduled to expire in a decade. And Sen. Bob Corker (R-Tenn.) recently told CNBC he opposes further legislation to make those cuts permanent, because they were done "solely to get the corporate side down."
If the point of the bill was actually to just shovel even more money to the wealthy, and everything else was just a song and dance to get the heist through the political process, then the tax cuts aren't a failure.
They're actually a roaring success.