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Originally Posted by ShotgunDMB
It’s all speculation at this point. I guess we could make another avatar wager, but I think the corporate tax cut will boost growth and wages a noticeable amount.
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I wish we had made that Avatar bet back when discussing the impact of the Trump tax cut - your posts would look awesome with some Mets flair to it!
Last week, the bipartisan Congressional Research Service published a report showing that the tax cut did not do much to boost wages or growth, and instead the benefit was mostly directed to investors:
https://www.everycrsreport.com/repor...ml#_Toc9506685
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In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run.
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CBO, in its first baseline update post enactment, initially estimated that the Act would reduce individual income taxes by $65 billion, corporate income taxes by $94 billion, and other taxes by $3 billion, for a total reduction of $163 billion in FY2018. Corporate revenues were about $40 billion less than projected whereas individual revenues were higher, with an overall revenue reduction of about $9 billion. From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%.
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Real wages grew more slowly than GDP: at 2.0% (adjusted by the GDP deflator) compared with 2.9% for overall real GDP. Such slower growth has occurred in the past. The real wage rate for production and nonsupervisory workers grew by 1.2%.
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This chart shows the long-run trend pre-cut and the 4 quarter post-cut impact:
https://www.everycrsreport.com/files...fc2865d1a5.png
It does not appear to be a significant deviation from the trend, and the effect appear to have already worn off. Moreover, wages did not grow at the pace of the broader economy, suggesting a muted impact on workers as a result of the cut; with the report saying:
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In the absence of the tax cuts, wages should grow with the economy and wage rates should grow as the capital stock grows. In addition, tight labor markets resulting from the approach to full employment should have put upward pressure on wage rates in any case. Evidence from 2018 indicated that labor compensation, adjusted to real values by the price indices for personal consumption expenditures, grew slower than output in general, at a 2.3% rate compared with a 2.9% growth rate overall. If adjusted by the GDP deflator, labor compensation grew by 2.0%. With labor representing 53% of GDP, that implies that the other components grew at 3.8%.34 Thus, pretax profits and economic depreciation (the price of capital) grew faster than wages.
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It also does not appear that personal consumption was drastically impacted by the cut:
https://www.everycrsreport.com/files...899a08109e.png
The largest change, albeit a temporary one, resulting from the cut were deviations in trends of dividends/repatriation and re-invested earning. Immediately following the cut, dividends & withdrawals spiked while re-investment plummeted. Both measures have returned, more or less, to pre-cut levels in the quarters following the implementation.
All in all, the report paints a pretty clear picture of a very costly tax cut that did not meet its objectives in boosting growth above the trending average/3% and disproportionately benefited corporations and investors compared to workers; especially those in non-supervisory roles.