FacebookTwitterRedditEmail

Early Reviews of Trump Tax Cut are Not Good: Capital Goods Orders Fall in December

Photo by CafeCredit.com | CC BY 2.0

The centerpiece of the Republican tax cut was a big reduction in the corporate tax rate, lowering it from 35 percent to 21 percent. While critics argued this was just a handout to shareholders, who are overwhelmingly wealthy, the counter was the tax cut would lead to a surge in growth, which would benefit everyone.

The logic is that a lower tax rate provides more incentive to invest. With new investment in plant, equipment, and intellectual products, productivity will rise. Higher productivity will mean higher wages, which is good news for the bulk of the population that works for a living.

We got the first test of the jump in investment story today when the Commerce Department released data on capital goods orders for December. It is not good for the Republican position. New orders actually fell for the month, dropping by a modest 0.1 percent from the November level. Excluding aircraft orders, which are highly volatile, orders fell 0.3 percent.

These are not huge declines and this series is always erratic, so no one should make a big deal about the reported fall in December. But it certainly is hard to make the case here for some huge tax-induced jump.

If folks think it’s too early to make any assessment, let’s take the Republican argument at face value. They claim that the tax rate makes a huge difference in the investment decisions of firms. While the bill was just signed into law at the end of last month, it was pretty much a sure deal by the 20th. Furthermore, the basic outline was on the table at the start of September.

If the tax rate is really a big deal for investment decisions, then corporate America should have been putting together its list of likely projects as soon as a big tax cut became a clear possibility back in September. By December, forward-looking firms should have been ready to jump as soon as they knew the tax cut would be a reality.

This means that we should have seen at least some of these orders being registered before the end of the year. The fact that there is zero evidence of any uptick suggests that investment decisions are not as sensitive to tax rates as claimed.

It is, of course, early — maybe the January data will tell a different story. But so far, it doesn’t look like the Republicans have much of a case. The tax cuts definitely made the rich richer, at this point we don’t have much evidence they will help anyone else.

This column originally appeared on CEPR.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

bernie-the-sandernistas-cover-344x550
July 23, 2019
Patrick Cockburn
Why Boris Johnson is Even More Dangerous Than Trump
Christopher Ketcham
The American West as Judeo-Christian Artifact
Jack Heyman
Whitewashing American History: the WPA Mural Controversy in San Francisco
David Mattson
Through the Climate Looking Glass into Grizzly Wonderland
David Macaray
Paul Krassner and Me
Thomas Knapp
Peckerwood Populism is About Political Strategy, Not Personal Belief
John Kendall Hawkins
Assange and His Wiki Wicked leaks
Howard Lisnoff
What Has Happened to the U.S. Since the Kids Left Woodstock?
Victor Grossman
“How Could They?” Why Some Americans Were Drawn to the Communist Party in the 1940s
Gary Leupp
Minnesota, White People, Lutherans and Ilhan Omar
Binoy Kampmark
Lunar Narratives: Landing on the Moon, Politics and the Cold War
Richard Ward
Free La Donalda!
July 22, 2019
Michael Hudson
U.S. Economic Warfare and Likely Foreign Defenses
Evaggelos Vallianatos
If Japan Continues Slaughtering Whales, Boycott the 2020 Tokyo Olympics
Mike Garrity
Emergency Alert For the Wild Rockies
Dean Baker
The U.S.-China Trade War: Will Workers Lose?
Jonah Raskin
Paul Krassner, 1932-2019: American Satirist 
David Swanson
U.S. Troops Back in Saudi Arabia: What Could Go Wrong?
Robert Fisk
American Visitors to the Gestapo Museum Draw Their Own Conclusions
John Feffer
Trump’s Send-Them-Back Doctrine
Kenn Orphan – Phil Rockstroh
Landscape of Anguish and Palliatives: Predation, Addiction and LOL Emoticons in the Age of Late Stage Capitalism
Karl Grossman
A Farmworkers Bill of Rights
Gary Leupp
Omar and Trump
Robert Koehler
Fighting Climate Change Means Ending War
Susie Day
Mexicans Invade US, Trump Forced to Go Without Toothbrush
Elliot Sperber
Hey Diddle Diddle, Like Nero We Fiddle
Weekend Edition
July 19, 2019
Friday - Sunday
Rob Urie
The Blob Fought the Squad, and the Squad Won
Miguel A. Cruz-Díaz
It Was Never Just About the Chat: Ruminations on a Puerto Rican Revolution.
Anthony DiMaggio
System Capture 2020: The Role of the Upper-Class in Shaping Democratic Primary Politics
Andrew Levine
South Carolina Speaks for Whom?
Jeffrey St. Clair
Roaming Charges: Big Man, Pig Man
Bruce E. Levine
The Groundbreaking Public Health Study That Should Change U.S. Society—But Won’t
Evaggelos Vallianatos
How the Trump Administration is Eviscerating the Federal Government
Pete Dolack
All Seemed Possible When the Sandinistas Took Power 40 years Ago
Ramzy Baroud
Who Killed Oscar and Valeria: The Inconvenient History of the Refugee Crisis
Ron Jacobs
Dancing with Dr. Benway
Joseph Natoli
Gaming the Climate
Marshall Auerback
The Numbers are In, and Trump’s Tax Cuts are a Bust
Louisa Willcox
Wild Thoughts About the Wild Gallatin
Kenn Orphan
Stranger Things, Stranger Times
Mike Garrity
Environmentalists and Wilderness are Not the Timber Industry’s Big Problem
Helen Yaffe
Cuban Workers Celebrate Salary Rise From New Economic Measures
Brian Cloughley
What You Don’t Want to be in Trump’s America
David Underhill
The Inequality of Equal Pay
David Macaray
Adventures in Script-Writing
FacebookTwitterRedditEmail