Fake tax reform, real debt

Fake tax reform, real debt
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According to the Merriam Webster dictionary, reform is defined as “to put or change into an improved form or condition."

When examining the early economic consequences of the recently passed tax bill, one would be hard pressed to call the bill little more than a bid to try and stimulate economic growth through massive borrowing. It was never real reform, it was fake reform the entire time.

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It was never meant to be real reform, instead it was always meant to serve two purposes: Ensure campaign donations continued flowing to the bill’s proponents in Congress, and drive up deficits to build a case for cutting entitlement programs.

 

Regarding campaign donations, consider Sen. Lindsey GrahamLindsey Olin GrahamKim, Moon toss ball to Trump in ‘last, best chance’ for Korean peace GOP senator: Kavanaugh accuser 'moving the goalposts' Collins: Kavanaugh accuser should 'reconsider,' testify on Monday MORE’s (R-S.C.) explanation of the consequences of not passing the tax bill: “The financial contributions will stop."

Regarding its role in increasing deficits to build the case for cutting entitlements, shortly before passing the bill, House Speaker Paul RyanPaul Davis RyanHow does the 25th Amendment work? Sinema, Fitzpatrick call for long-term extension of Violence Against Women Act GOP super PAC drops .5 million on Nevada ad campaign MORE (R-Wis.) stated, “We’re going to have to get back next year at entitlement reform, which is how you tackle the debt and deficit."

Now, don’t get me wrong, some outside of Congress believed the members of Congress promoting the tax bill as reform that would drive wage and job growth. Unfortunately, early indications are that their faith was misplaced.

Reality No. 1

The promised significant increase in wage growth has not materialized. Instead, the rate of wage growth went from 2.66 percent annually the month the bill was signed by President TrumpDonald John TrumpHannity urges Trump not to fire 'anybody' after Rosenstein report Ben Carson appears to tie allegation against Kavanaugh to socialist plot Five takeaways from Cruz, O'Rourke's fiery first debate MORE to an average of 2.69 percent the first three months after the bill was passed, according to the St. Louis Federal Reserve's Federal Reserve Economic Data and Solutionomics calculations — so much for the massive increase in wage growth.

Reality No. 2

What has increased are corporate profits. The six largest U.S. banks registered $30 billion in earnings in one quarter, the first time ever, according to Bloomberg News.

Reality No. 3

So-called tax reform increased the six largest banks’ earnings $2.5 billion in the first quarter, according to the Wall Street Journal.

Reality No. 4

It should be no surprise that companies flush with tax-“reform”-inflated earnings significantly increased first-quarter share buybacks to the tune of more than $200 billion while one of the six largest banks’ (J.P. Morgan) own analysts estimates that 2018 share buybacks will increase more than 50 percent to $800 billion in 2018, a $270 billion increase from 2017’s share buybacks.

Reality No. 5

The Congressional Budget Office’s most recent budget estimates project the tax bill increasing the U.S. deficit by $1.9 trillion over 11 years, even after assuming an increase in economic growth related to the tax bill.

While it was sold as reform and a surefire way to significantly increase wages, the only significant increases so far have been corporate profits, share buybacks and federal deficit projections. Perhaps the real reform we need is applying truth in advertising laws to members of Congress.  

Chris Macke is the founder of Solutionomics, a think tank focused on developing solutions for a more efficient, merit-based corporate tax code. He has advised the U.S. Federal Reserve by providing market updates and implications of monetary policy changes on asset valuations and market distortions, and he's a contributor to the Fed Beige Book. Find him on Twitter: @solutionomics.