One year after one of the biggest tax overhauls in American history, a survey released on Monday has revealed that the tax cut has not brought about the anticipated huge changes to the investments and employment plans of businesses across the United States.
In 2018, the Donald Trump-led administration effected a $1.5 trillion tax cut with hopes of increasing both job growth and investments, in line with its hotly-debated trickle-down economic philosophy.
The quarterly business conditions poll carried out by The National Association of Business Economists (NABE) however, shows that the vast majority of survey respondents have not changed their hiring and investment plans since the tax cut was passed. According to the survey results, the number of respondents who have not increased investments has actually gone up from 81 percent to 84 percent compared to the prior poll published in October 2018.
Tax Savings Fail to Trickle Down
The corporate tax slash from 35 percent to 21 percent which took effect in January 2018 was marketed by the Trump White House as a business-friendly policy that would catalyze investment and job creation as well as increase business spending, resulting in overall economic growth and increased wages. According to the trickle-down theory, such tax cuts which put more money into the hands of investors and shareholders will result in increased business and personal spending, which will act as a boost for the economy.
Quoted by Reuters, President of NABE, Kevin Swift indicated that the exact opposite has taken place saying:
A large majority of respondents, 84 percent, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans.
A notable exception to the mean, however, was the production sector which returned a 50 percent increase in investments as well as increased local hirings compared to the pre-tax cut era.
In what looks like bad news for equity markets, the poll also revealed that business spending slowed down in Q4 2018 even though reports from the third quarter had indicated a mid balance. According to the survey, capital spending is at the lowest it’s ever been since July 2017 and the coming next three months are also not looking positive.
Swift who also doubles as American Chemistry Council’s chief economist said:
Fewer firms increased capital spending compared to the October survey responses, but the cutback appeared to be concentrated more in structures than in information and communication technology investments.
Compared to the third quarter, employment growth has spiked a bit with at least 33 percent of the respondents reporting increased employment at their companies – an improvement from the 31 percent reported in October.
Donald Trump image from REUTERS/Jonathan Ernst.
Last modified: September 23, 2020 12:24 PM