The Republican tax cuts don’t seem to be inspiring companies to boost their investments or hire more workers, according to the latest business conditions survey from the National Association of Business Economics, released Monday.
“A large majority of respondents—84%—indicate that one year after its passage, the 2017 Tax Cuts and Jobs Act has not caused their firms to change hiring or investment plans,” said Kevin Swift, president of NABE and chief economist at the American Chemistry Council. The results are similar to those in the October survey, which found that 81 percent of respondents reported no effects from the tax cuts.
The goods-producing sector may be the exception to the rule, NABA found, with most firms noting increased investment, and some reporting funds being redirected to the U.S. The survey was conducted with 106 NABE members in a variety of industries between December 17, 2018, and January 9, 2019.
Wait 'Til Next Year?
Despite the lack of evidence that the GOP tax bill is producing the increased growth and investment promised by Republicans, the corporate tax cuts still have plenty of defenders. James Pethokoukis of the American Enterprise Institute, for example, says that it’s just too early to judge the tax cuts on the basis of business investment and hiring — and while increased investment has seemed minimal over the first year, other factors such as increased federal borrowing and rising trade tariffs, may have offset the pro-growth effects of the tax cuts. Over the longer-term, though, the economic theory behind the cuts still holds, he argues.
On the other hand, critics of the corporate tax cuts say the explanation for weak investment is pretty simple. Responding to the NABE report, Mike Konczal of the Roosevelt Institute writes, “in an era with record-high capital market payouts and where interest rates are so low central bankers debate making them negative, the cost of capital isn't a major constraint on investment.” When investment capital is already cheap and readily available, the argument goes, it makes sense that a reduction in tax rates would do little to inspire more investment. So far, the data appears to be on the side of the critics.