The tax cuts from last December were sold as something to spark corporate spending on capital investments and job expansion. But what was promised isn't what has been delivered.
Job growth has largely been in line with what we've seen over the last few years without the tax cut. Below is a graph from the Federal Reserve Bank of St. Louis, based on Bureau of Labor Statistics data.
Median wages have also remained largely flat, even though the number of open jobs is larger than the number of people looking for work, as I mentioned in a story elsewhere. It's a candidate's market, at least for those with job skills highly in demand, and one seeing rising wages. For those with lesser skills, there are more applicants than jobs and wages aren't moving much of anywhere. So, the median wage, which is what the government reports, stays at a sluggish pace of growth and, after inflation, means next to no increase in real buying power. Income inequality only increases.
The Federal Reserve Bank of Chicago keeps a running tally of surveys on a current capital spending index by companies. A zero index means "that, on balance, activity, hiring, capital spending, or cost pressures" are following current trends or that outlooks are neutral. Positive is above average growth or optimism. Negative is below average. And the latter is where things have been even with the tax cuts, at least through May.
This shouldn't be surprising. The Atlanta Federal Reserve, working with the University of Chicago and Stanford, has repeated polled businesses small to large about whether the tax cuts caused them to revise capital expenditure plans. Here are the answers as of March for 2018 showing that most companies were not increasing their spending plans as a result of the tax cuts:
They also asked about 2019, in case capital planning had been locked in place for this year. Again, most firms are sticking to their original plans.
Apparently the results have confounded the economists behind the survey. Those in economics think that reality follows economic laws when, in fact, laws in any academic field are meant as an attempt at describing phenomenon.
If you've been in business — and this is probably the reason that economists can miss this sort of phenomenon — you realize that companies don't spend money if they don't have to. If taxes are lower, you won't invest more unless you see think that your customer base will expand or spend more. The point is to improve profits, not follow academic expectations.
The tax cuts, which were supposed to stimulate hiring, wages, and capital investment, largely aren't. Trends expressing themselves are long-term. The economy won't get a tremendous boost and deficits increase, making the government less economically stable.
