Terry H. Schwadron
June 8, 2019
A couple of recent national economic studies confirm what has been widely accepted — the unchecked tariffs and tough trade policies that Donald Trump are running on multiple fronts will more than wipe out any financial gains that came through the Tax Cuts.
These studies say that for all but the very richest Americans, what is in effect a tax increase to pay the bloated consumer prices for imported products from tequila to autos, is eliminating any gains from the cuts.
Meanwhile, we’re not doing well towards resolving outstanding trade problems with China, after serious threats, as of an overnight presidential tweet, we’re backing off expanding tariffs to Mexico, and real-time problems loom with Iran, North Korea, Venezuela, Cuba and with a disruptive climate. We have only expensive bad news ahead of us for health care and insurance access, continuing high prescription drug prices, immigration disruption and a rotting infrastructure that invites solutions.
I’m not surprised. I wasn’t seeing any benefit from those tax cuts anyway, because local taxes in New York State are no longer fully deductible from federal income tax. And unlike our president, I’m not deducting billions of dollars of borrowed, personal finances against my non-existent real estate deals to wipe out taxes for a decade at a time.
Still, the voices that follow the ups and downs of the economy, the last people on the planet making use of climate-oriented metaphors, are saying more often now that the storm clouds on the economic horizon are significant.
Economic arguments, the mainstay for the Trump political appeal, are giving way to social issues. There seems to be good reason for that. Consider:
· Both the Tax Foundation and the Penn Wharton Budget Model have concluded that Trump’s tariffs amount to a significant tax increase, by raising consumer goods, reported Jim Tankersley of The New York Times. He added that presuming the Mexico tariffs go forward next week as a tool to lessen immigration, the increases would outpace the savings from tax cuts. The Tax Foundation concluded that the lowest-earning American taxpayers would see an effective tax increase of 1.1 percent of their income this year; Those in the middle would see a 0.3 percent tax increase, and upper-middle-class earners would have their gains from tax cuts wiped out. Only the top 5 percent of earners would continue to see a net tax cut of more than 1 percent on the year. Poorer people tend to spend a larger proportion of their income on imports like clothing.
· Federal Reserve Chairman Jerome H. Powellsaid this week that the central bank is prepared to act to sustain the economic expansion should fallout from President Trump’s trade threats and actions against China and the Mexico threaten the U.S. economy. “We do not know how or when these issues will be resolved,” Powell said of trade negotiations between the United States and other nations. Powell has said that Fed analysts see the economy slowing in the next 12 months even without increased tariffs. Weirdly, Trump could gain a goal he has for the Fed to lower borrowing rates by threatening to worsen the economy with tariffs.
· By contrast, Trump continues to crow about the economy in rallies and interviews without any reference to any such weaknesses ahead.
· Those jobless numbers being bandied about each month tell a good story about the availability of jobs, but a poor job of whether those jobs are allowing people to cover their bills — though there yesterday, the government reported that the country added only 75,000 jobs in May, substantially less than in previous months. The reason: new uncertainty resulting from tariffs.Experts are being quoted by a variety of news sources as saying employers are having trouble filling vacancies, that workers need substantial retraining especially in specific areas of the country, and that the bias against immigration is hurting farmers, manufacturers and high tech alike.
· The nonpartisan Congressional Research Service says that the effects of the Trump tax cuts on economic growth and wages were minimal at best, undercutting the basic rationale for passing them. We have not seem the explosion of investment that would cause wages to soar, ensuring that the tax cuts paid for themselves. The Congressional Research Service found that none of this is meaningfully happening, and the deficit has soared, said the Washington Post.
The Post’s Greg Sargent argues that damage caused by Trump’s trade wars and the undermining of the tax cut’s minuscule low-end benefits should spell out a conclusion that Trumponomics are basically a failure, not the beautiful result that Trump touts to campaign rallies. Trump boasts that the massive corporate tax cuts are showering workers with rising wages fueled by boosted corporate investment, while his trade and immigration policies are protecting them from bad trade deals like China and Mexico.
Likewise, the crackdown on border crossings and mean-spirited enforcement of immigration policies is drawing the opposite result from what Trump had intended.
Go back to the last presidential election, and remember that the Trump effect came about, in large part, based on voter anger over their financial condition — the common complaint that they had been left out of economic recoveries under former President Barack Obama. The question as we look ahead is whether voters will recognize that the steps Trump has taken actually are not having the intended curative effect.
Personally, I find that the sharpest talk among Democrats like Elizabeth Warren to invest in the alternative industries and job training to produce the goods that we actually will need in energy, communications, bio-engineering and carbon-fighting sounds like a more reliable approach than starting trade wars — and threatening actual wars — around the globe.
It would be a good idea for voters to demand that Trump show the progress he claims.