The Washington PostDemocracy Dies in Darkness

The Finance 202: Conservative economists say Trump’s promises about his tax cuts did not come true

with Brent D. Griffiths


President Trump cites massive tax cuts, his signature legislative achievement, among wins that should dissuade lawmakers and voters from supporting his impeachment. 

Congressional Democrats reject out of hand that Trump’s policy agenda has anything to do with the misconduct at the heart of their impeachment push. But more ominously for Trump’s reelection prospects, several conservative economists now say the law, which turns two years old Sunday, so far has fallen short of its central promise to spread prosperity broadly.

“I was certainly expecting to see something different,” Alan Viard, an economist with the right-leaning American Enterprise Institute, says of a business investment boom that hasn't materialized. “Really, you would have expected, if there’s an effect taking place here, you would have seen it.”

Boosters of the package predicted it would set off a virtuous trickle-down effect. The cuts, they said, would compel businesses to invest in their own operations. In theory, that would boost their productivity, ultimately yielding higher wages for workers. Here’s how the right-leaning Tax Foundation envisioned the process playing out in 2018:

Instead, the first step in that daisy chain largely hasn’t come to pass. Business investment has contracted over the past two quarters, falling 3 percent over the three-month period that ended in September — the steepest such drop since 2015:

Economists surveyed by the Wall Street Journal named the development as a top disappointment this year.

Defenders of the tax cut say Trump’s trade war cast a pall of uncertainty over the economy, spooking business leaders into shelving any big spending plans they may have been contemplating. That, these economists say, makes it impossible to draw firm conclusions about how the tax cut would have performed without the fear unleashed by the trade war. Some argue the falloff in business investment would have been even worse — and that it could still recover if Trump winds down the trade hostilities next year, or that it needs more time to play out.

At some point, however, the numbers speak for themselves. “We haven’t seen a huge investment boom. That was validating for a lot of folks on the center-left,” says Garrett Watson of the Tax Foundation. “That’s just an accurate description of where we are.”

Some conservatives say the partisan process that yielded the tax cuts, and their underperformance and poor public polling since have helped embolden aspiring Democratic leaders to propose dramatic tax hikes. Nicole Kaeding, vice president of policy promotion at right-leaning National Taxpayers Union Foundation, recently tweeted that when Trump signed the law two years ago, she “did not fully appreciate just how far left it would push the 2020 tax debate in the [Democratic] primaries.”

Watson said Trump officials’ hyperbolic claims about the boom times the tax cuts would unleash also hurt their own cause. The Tax Foundation for example projected the measure could juice economic growth to 2.7 percent — but White House officials publicly touted a pace nearly twice as brisk. “We’ve been clear that should not have been expected, and it does not do proponents of tax reform any favors,” he said.

But economists critical of the law say the results make clear that theory behind the tax cuts was fundamentally broken from the start. "There’s just no shortage of business capital. You can see that by looking at interest rates,” says Edward Kleinbard, a former chief of staff of the congressional Joint Committee on Taxation, now a professor at the University of Southern California Gould School of Law. “In a world where we are awash in capital, to say we now have a tax environment that’s friendlier to business investment is no more convincing than pushing on a string.”

Whatever the combination of reasons, polls show the tax cuts have remained broadly unpopular with voters. And the package does not appear to be improving with age. 

A new report by the left-leaning Institute on Taxation and Economic Policy found 91 corporations in the Fortune 500 paid no federal taxes last year. And about 400 of the largest firms paid an average tax rate of 11 percent, half the burden prescribed by the tax law. 

“Many companies said a big drop in corporate tax rates would allow them to invest more in capital and equipment, but the uptick in new investment appears to have been short-lived,” my colleagues Jeff Stein and Christopher Ingraham wrote recently. “Much of the extra capital went into record stock buybacks, which increase share prices without requiring new investment or hiring.”

PROGRAMMING NOTE: This will be our last newsletter of the year, and we'll be back in your inbox on Monday, Jan. 6. In the meantime, here's wishing you and yours a very happy holiday. 


Wall Street still doesn't care about impeachment. MarketWatch's William Watts: "Investors don’t care about impeachment — and that is unlikely to change unless there is a shift in widely held expectations that [Trump] will remain in office... 

"Stock-market indexes aren’t anticipated to produce much of a reaction on Thursday after finishing near all-time highs, with futures trading on Wednesday showing small gains for stocks. Equities weakened toward the end of Wednesday’s regular session, with the S&P 500 and Dow Jones Industrial Average ending slightly lower to break a five-day winning streak that had taken them to a series of records.

Stocks have climbed since the process started: "The impeachment battle has largely been ignored by investors. Indeed, the S&P 500 has added substantially to year-to-date gains, which now stand at more than 27%, even as the impeachment proceedings have taken shape."

Economists predict the expansion will power through next year. WSJ's Harriet Torry: "The U.S. expansion, now in its 11th year, will continue through the 2020 presidential election with a healthy labor market backing it up, economists say. The panel of 57 economists who participated in The Wall Street Journal’s December economic survey offered a relatively optimistic outlook for 2020 growth, albeit at a slower pace than in 2019.

"On average, they expect U.S. economic growth to slow slightly in 2020, to a year-over-year rate of 1.8% in the fourth quarter from an estimated 2.2% in 2019. They also see lower odds of a recession over the next year than they did in the prior two months."

A demographic time-bomb menaces the jobs boom. WSJ's Greg Ip: "The U.S. job market continues to blow through expectations, generating 200,000 new jobs month after month and driving unemployment far below what economists thought a decade ago was the lowest possible level... Yet eventually it will hit a constraint: The U.S. will run out of people to join the workforce. Indeed, this bright cyclical picture for the labor market is on a collision course with a dimming demographic outlook. While jobs are growing faster than expected, population is growing more slowly."

— IPOs set record, despite big flame-outs: “Unicorns like Uber, Lyft and Slack may have had disappointing IPOs, but U.S. venture capital firms gave birth to a record number of unicorns in 2019,” Reuters’s Jane Lanhee Lee reports.

“So far this year 66 venture capital-backed unicorns were minted in the United States versus 58 in 2018, according to market data firm CB Insights.”

Fed's Williams says repo operations working well and should stay in place 'just as long' as needed (CNBC)

Trump Administration Weighs Plans to Reduce Student Debt (WSJ)



F202 exclusive: NAM survey finds optimism is stabilizing. Manufacturing optimism has stabilized, a National Association of Manufacturers' survey coming out this morning will reveal. Sixty-eight percent of manufacturers are reporting a positive outlook for their businesses for the fourth quarter of 2019, virtually the same as the previous quarter’s numbers. In terms of concerns, the inability to attract and retain a talented workforce remains at the top of the list for the ninth straight quarter. 

The survey went out before a round of even more positive news: House Democrats reached a deal on the USMCA, Trump announced a phase-one agreement with China and the year-end spending bill includes long-term reauthorization of the Export-Import bank --- all major priorities for the association.

  • “All of these actions have the power to reduce the trade uncertainty we see in this survey,” NAM President and CEO Jay Timmons said in a statement. Timmons also sent a letter to the Hill this morning strongly urging the USMCA’s passage, which is expected to happen in the House later today. “NAM believes strongly that passage of the USMCA is critical for restoring certainty and expanding growth for manufacturers across America,” he writes.

— House expected to vote on USMCA today: “The House Ways and Means Committee favorably reported on the proposal, created as a replacement for the North American Free Trade Agreement, on Tuesday, clearing the way for the House vote,” the UPI reports.

“The bill received bipartisan support in the committee and is expected to receive similar backing when the full house votes on it.”

  • Meanwhile, moderate Democrats are mad at McConnell: “Vulnerable House Democrats say they are frustrated that Senate Majority Leader Mitch McConnell has pushed a Senate vote on the new North American trade pact to next year,” Politico’s Sabrina Rodríguez reports

You have to marvel at this: “Wakanda's free trade agreement with the United States wasn't forever,” NBC News's Phil McCausland reports.

“Until Wednesday afternoon, the fictional country from the popular 2018 Marvel superhero movie ‘Black Panther’ was listed as a free trade agreement partner of the United States on the Agricultural Tariff Tracker maintained by the U.S. Department of Agriculture’s Foreign Agricultural Service … The USDA said they had used Wakanda when testing the system behind the tracker and had forgotten to remove Black Panther's home country.”

IMPEACHMENT MINUTE: A speed read on the latest from the congressional impeachment process.

The House of Representatives voted on Dec. 18 to impeach President Trump on charges that he abused his office and obstructed Congress. (Video: The Washington Post)

"Trump is impeached by the House, creating an indelible mark on his presidency." By The Post's Philip Rucker, Felicia Sonmez and Colby Itkowitz 

"Pelosi says House may withhold impeachment articles, delaying Senate trial." By The Post's Mike DeBonis 

"Impeachment split screen: As House votes in Washington, Trump rallies in Michigan." By The Post's Josh Dawsey and Ashley Parker 

"However historic, impeachment is but a way station in the struggle over Trump’s presidency." By The Post's Dan Balz 


— Americans' procrastination is big business: “U.S. retailers are expected to ring up record sales on Super Saturday this year, as fewer days than usual between Thanksgiving and Christmas have squeezed shoppers to finish their purchases,” Reuters’s Nandita Bose reports.

“In recent years, the Saturday before Christmas has seen a late surge in shopper traffic. With retailers maintaining deep discounts late into the holiday season, total sales on Super Saturday have edged closer to Black Friday, the day after Thanksgiving which traditionally kicks off the season in November.”

— Boeing faces key test: “ Boeing has been under siege for months after two of its 737 Max aircraft plummeted from the sky killing 346 people … Even Jim Chilton’s part of the company — the space division — was the subject of a searing watchdog report last month that found it had received hundreds of millions of dollars in ‘unnecessary’ payments stemming from an unusually cozy relationship with NASA,” my colleague Christian Davenport reports.

“That launch is now scheduled for 6:36 a.m. Friday from Cape Canaveral, and while no astronauts will be on board, the first launch of its new spacecraft has taken on a far greater importance for Boeing than just a test. It’s a shot at a bit of redemption.”

Suppliers brace for fallout. The NYT's David Yaffe-Bellany writes the company's decision to halt production of the 737 Max "is stretching far beyond Boeing’s headquarters in Chicago and its giant production facility in Renton, Wash., rippling through the worldwide aerospace supply chain from California to Kansas, Britain to France. For Boeing’s vast network of suppliers, the announcement made real what they had dreaded — a suspension of unknown length that could force some of them to scale back production and even lay off workers."

— FedEx's feud with Amazon proves costly: “FedEx’s rocky relationship with Amazon may have contributed to its fiscal second-quarter earnings slump, but the shipping company says it could actually turn a corner and outpace its competitor in fiscal 2021,” CNBC’s Annie Palmer reports.

“FedEx has spent heavily to expand its ground-delivery service to run seven days a week all year. Graf said those investments, along with ‘operational synergies’ in Europe, will start to pay off in the company’s fiscal 2021. (Amazon CEO Jeff Bezos owns The Washington Post.)

— Texas and Google battle over antitrust: “Texas investigators are defending their decision to employ some of Google’s longtime foes as part of an antitrust probe into the search giant, saying in a court filing that the recent legal objections raised by the company threaten to ‘severely compromise’ states’ scrutiny,” my colleague Tony Romm reports.

“At issue are a number of consultants retained by Texas Attorney General Ken Paxton, who is leading an inquiry into Google’s ad business that’s backed by 50 other attorneys general. The experts include people who previously have worked on behalf of Google’s rivals, including News Corp., in antitrust battles around the world.”

Renaissance Employees Could Face Clawbacks Over Hedge Fund’s Tax Maneuver (WSJ)


— Don’t forget the debate is tonight: “One side of the Democratic Party wants the nation’s billionaires to pay a slightly higher tax rate on their income. Through an unprecedented wealth tax, the other side would target the stock holdings, real estate and other property of the nation’s billionaires to raise trillions of dollars of new revenue,” my colleague Jeff Stein reports.

“One side has virtually no plans to have the government take over private industry. The other has an armada of proposals for federal interventions, spanning from government control of American health insurance to public production of prescription drugs to mandating worker control over their companies ...The eventual nominee will determine the party’s position on the taxes paid by the richest Americans; the size of the federal welfare state; the makeup of the health-care industry; and the relationship between workers and corporations, among other vital economic questions.”

— More investors say Trump will win again: “A growing majority of equity investors expect [Trump] will win re-election in 2020, according to an RBC survey,” Bloomberg News’s Felice Maranz reports.

“In the firm’s December survey, 76 percent of 119 respondents said they thought Trump will win, a ‘big jump’ from September’s 66 percent, Head of U.S. Equity Strategy Lori Calvasina wrote in a note. The figures reversed fading expectations regarding a Trump victory in June and September surveys. Those predicting a Democrat will win came in at 24 percent in December, down from 34 percent in September.”


A call for a financial fraud registry. The Post's Renae Merle: "The federal government should establish a national financial fraud registry to make it easier for prosecutors and investors to identify repeat offenders, according to a top law enforcement official.

“'It is about public safety and deterrence. Financial institutions hold a place of trust, they are so interwoven in people’s lives,' said Christy Goldsmith Romero, special inspector general with the Troubled Asset Relief Program, which investigates crime at companies that received taxpayer bailouts during the global financial crisis. But 'there is no easy access to information when trying to determine where to investigate.'

"The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), launched its own database for financial crimes on Wednesday. The searchable database includes details of nearly 400 criminal convictions, guilty pleas and fines secured by SIGTARP over the past decade."



  • Rite Aid, Conagra Brands and Accenture PLC are among the notable companies reporting their earnings.
  • The American Enterprise Institute holds an event about the USMCA with Sen. Pat Toomey (R-Pa.)


  • Nike, Carnival Corp. and Carmax are among the notable companies reporting their earnings.