‘Rocket Fuel’ on My Economy
Terry H. Schwadron
Dec. 4, 2017
If the tax bill is “rocket fuel” for the economy, how long will we have to wait to see our new wealth? Sure, there is this minor bit about reconciling House and Senate versions, but setting that aside, how soon can we expect to cash in?
If you trade in stocks, the market has already made its mark. The exuberance with which Wall Street greeted the possibility of lower taxes for corporations pushed most indices up by near single-day records. Of course, even the hint of a glitch forced the same markets downward, but let’s not focus on that.
We’re Winning! This mammoth Senate victory of agreement by 51 Republicans in the middle of the night even as they were rewriting the bill by hand reflects the vast approval this tax cut idea has across the country. But then, President Trump thinks he won in a landslide last November, not by 70,000 votes of 60 million cast.
So, when and where will we see the first signs of our wild, new era of prosperity?
Perhaps the Republicans want to set up a phone bank to answer questions about handling our new wealth . . . Hey, maybe that in itself could be incorporated as a new center of innovation and hire some employees. Just think, they could be answering questions like these:
— How soon are multinational companies going to abandon their profit centers overseas and bring those jobs back home? Will companies who have been paying next to nothing in taxes now jump at the chance to pay taxes of 20 percent of profits?
— Just out of curiosity, how soon will overseas countries drop their corporate tax rates to compete better against these newly enthused American companies?
— Are companies simply going to raise salaries across the board for workers, or do we have to wait for the tax season to end to see the average $4,000 more in our paychecks?
— Now that I can do my taxes on a postcard, will there be a special government retraining program for CPAs? Also, is the price of the government stamp on the postcard tax-deductible?
— Now that I won’t have to pay for health care insurance, did the Senate also outlaw disease? Of course, I will have to pay for actual health care, and I can’t deduct it, so will the postcard tax return check on whether I’m in a coma because I can’t afford my insulin?
— Can I die now? Of course, I don’t own $11 million worth of an estate, but I’m ready to pass it along to the kids tax free. Actually, I guess with Medicare, Medicaid and Social Security now on the block to pay for corporate tax cuts, perhaps it will become an easier time for me to die early.
— Last year, I remember President Obama was going to kill us by increasing the federal deficit. But congratulations to Trump and Sen. Mitch McConnell, now increasing the debt is no longer something that will harm my family.
— If I want to get a babysitter this weekend, will the babysitter simply take a tax credit now in lieu of money?
— Now that student debt no longer can be deducted, do I still need to turn in that paper for the incomplete course?
So, seriously, how long will it take to see the new prosperity?
Several recent surveys and conferences suggest that CEOs plan to use money usually set aside for taxes on higher dividends for stockholders, paying down corporate debt and company stock buyback rather than on new investment. So, in truth, we should be looking for a rocket boost to stock markets, which are already over-performing to such a degee that some on Wall Street are talking about a new bubble.
In even six months, we should be able to see how many companies have increased dividends or increased their stocks price by buying down debt.
On the hiring front, big companies already say they have trouble finding big numbers of fully trained applicants. I’d hope that in the next year, we see the growth of job training programs — privately underwritten, since this government doesn’t seem to recognize adult education as a priority. But “investment” for most manufacturing companies really means “technology,” and we can easily forsee an increase in automation. That, of course, will not create jobs on the scale that the president has promised in selling this tax plan.
The tax bill is bad. The process by which it was forced through was bad. Resolving the Senate and House versions will make things worse.
But we should now be figuring out how to measure whether beyond the shortest-term effects, the tax bill actually delivers on its promises of prosperity for all.