Trickle Down Didn’t. Anyone Surprised?


The Congressional Research Service is the public policy research arm of the Library of Congress. It’s a neutral legislative branch agency, working for Congress, individual members, committees and the body as a whole. The CRS prides itself on being authoritative, confidential, objective and nonpartisan.

The CRS recently published a report finding that the promised benefits of the Republicans’ Tax Cuts and Jobs Act, the 2017 tax law revision, had failed to materialize. Anyone who still cares about facts – which admittedly lets out a sizable chunk of Republicans and all of the Executive Office – needs to read it. WC will touch on a few of the major points.

Source: Table 1.1.1, Bureau of Economic Analysis, National Income and Product Accounts (NIPA). Note: Seasonally adjusted at annual rates.

Source: Table 1.1.1, Bureau of Economic Analysis, National Income and Product Accounts (NIPA). Note: Seasonally adjusted at annual rates.

Did Trump’s tax cut result in growth in the Gross Domestic Product, the broadest measure of economic growth? Nope. There was a brief spike in the second and third quarters of 2018, but since the GDP has fallen below pre-tax cut levels.

Source: Table 1.1.1, Bureau of Economic Analysis, National Income and Product Accounts (NIPA) Note: Seasonally adjusted at annual rates.

Source: Table 1.1.1, Bureau of Economic Analysis, National Income and Product Accounts (NIPA) Note: Seasonally adjusted at annual rates.

Did all those tax cuts result ina surge in consumption, the demand side of the equation? Nope. It actually resulted in the lowest point since the second quarter of 2013, as the economy was recovering from the Great Recession. Even now, consumption is below the linear trend.

Source: Table 1.1.1, Bureau of Economic Analysis, National Income and Product Accounts (NIPA). Note: Seasonally adjusted at annual rates.

Source: Table 1.1.1, Bureau of Economic Analysis, National Income and Product Accounts (NIPA). Note: Seasonally adjusted at annual rates.

The CRS concludes:

Thus, while it is possible that the Act increased the investment due to supply-side effects, it would be premature to conclude that the higher rate of growth of nonresidential fixed investment was due to the tax changes. Looking at changes in the user cost of capital, effects of investments in structures would be expected to be largest, with small (or negative) effects on intellectual property. To date this pattern has not been observed.

Mixed results, and too muddled and too early to tell. The Republicans promised immediate growth in investment. That hasn’t happened.

Source: Tables 1.1.2, 1.1.1, and 1.1.4 Bureau of Economic Analysis, National Income and Product Accounts (NIP A). Notes: Seasonally adjusted at annual rates.

Source: Tables 1.1.2, 1.1.1, and 1.1.4 Bureau of Economic Analysis, National Income and Product Accounts (NIP A).
Notes: Seasonally adjusted at annual rates.

Wage growth simply didn’t happen. As the CRS put it, “[Wage] growth is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates.” 

Source: Table 4.1 Bureau of Economic Analysis.

Source: Table 4.1 Bureau of Economic Analysis.

Another Republican promise was that lowering the corporate tax rate would encourage profits left overseas to be brought home to the U.S. and reinvested. While money came back to the states, it wasn’t reinvested; in fact, capital reinvestment fell to the lowest rate in years and remains below pre-tax law rates. The corporations spent the money instead buying back their own shares, driving up share prices. Total share buybacks set n all-time high of more than $1 trillion.

Bonuses for workers? Almost trivial. Total bonuses came to about $4.4 billion. With US employment of 157 million, that amounts is $28 per worker. That’s about 2% to 3% of the amount the Republicans’ total corporate tax cut, and an even smaller share of repatriated funds.

But it’s entirely consistent with what most economists predicted: that a small percentage of increased corporate profits or repatriated funds (if any) would be used to compensate workers, as economic theory indicates that firms would pay workers their marginal product, a result of fundamental supply and demand forces. 

So Trump’s tax cut, ballyhooed as the best thing for the voters since sliced bread, turns out to be a huge reward for corporations, especially multinational corporations, and less than chickenfeed for voters. Once again, “trickle down economics” has proven to be a lie.

And this is CRS’s conclusion, not WC ex cathedra his belly button. Just saying.