A Brutal New Verdict on Trump’s Tax Cuts

Plus, $262 Billion Saved, Billions More to Go

Trump Tax Cuts Having Little Effect on the Economy, Wages: Study

The Republican tax cuts passed in 2017 have had only a modest effect on economic growth, wages and business investment, according to a new report from the Congressional Research Service.

The CRS, a nonpartisan agency within the Library of Congress that has been described as a public policy think tank for lawmakers, found that economic growth in the wake of the tax package has basically followed the existing trend line. “In previous years, output grew by 2.9% in 2015 and 2.5% in 2014, thus the increase in growth is in line with the trend in growth over the period,” the report says.

While there was an increase in the growth rate in the second quarter of 2018 (see the chart below), the jump appears to have been part of a transitory surge that was also driven by a significant increase in federal spending. “On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy” from the tax cuts, the report says, adding that “it does tend to rule out very large effects in the near term.”

Some additional takeaways from the report:

• The tax cuts aren’t paying for themselves: The White House insists that the cuts are already paying for themselves, but the CRS report finds no evidence that this is the case. The tax cuts would need to produce a 6.7% increase in GDP in order pay for themselves, but the analysts found a growth effect of about 0.3% — in other words, “5% or less of the growth needed to fully offset the revenue loss” from the tax cuts.

• The tax cuts had their greatest effect on corporations: Individuals saw modest tax cuts, but U.S. businesses experienced substantial — and lasting — reductions in tax rates. “From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%.”

• No surge in investment from abroad: The tax overhaul forced multinationals to bring billions of dollars back to the U.S. and there was a surge in repatriations in the first half of 2018. But as many critics have argued, much of that money is simply being moved around on paper, with little effect on domestic investment. The report finds a small increase (about 0.8%) in private investment last year, but nothing that indicates a change in the long-term trend.

• Wage growth has been lackluster: Nearly 10 years into the recovery, economists expect to see wage growth, but the tax cuts don’t seem to have produced anything outside the existing trend line, which is relatively weak. “The nominal growth rate in wages was 3.2%, but adjusting for the GDP price deflator, real wages increased by 1.2%,” the report says. “This growth is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates.”

• And workers haven’t gotten much by way of bonuses: There was a lot of talk about big bonuses for workers in the early days of the tax cuts, but CRS says the roughly $4.4 billion in reported bonuses come to about $28 per worker. It’s not easy to be sure the bonuses that were paid were actually connected to the tax cuts, either, since they “could also be a result of a tight labor market and attributed to the tax cut as a public relations move,” the report notes.

The bottom line: President Trump claimed that the GOP tax cuts would provide “rocket fuel” for the economy, but so far they have done little to change the long-run trajectory of economic growth.

Chart of the Day: The Cost of Cancer Drugs

A new study published in the Journal of the American Medical Association and highlighted by Axios finds that seniors are now paying far more out of pocket for cancer drugs than they did in 2010. (The study looked at prices for drugs covered by Medicare Part D — not those administered by doctors and thus covered under Medicare Part B.)

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Despite everything else going on, Nancy Pelosi said Wednesday that she's still optimistic about striking an infrastructure deal with President Trump. Just FYI. Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes.

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Reforms Saved US Gov't $262 Billion Since 2010, but There’s Room to Do Lots More: GAO

The U.S. government could save tens of billions of dollars by taking steps to improve its efficiency and eliminate fragmentation, overlap and duplication among its programs, according to a report published this month by the Government Accountability Office.

“The federal government continues to face an unsustainable long-term fiscal path caused by an imbalance between federal revenue and spending,” the report says. “While addressing this imbalance will require difficult policy decisions, opportunities exist in a number of areas to improve this situation, including where federal programs or activities are fragmented, overlapping, or duplicative.”

The report says that that the government has made “significant progress” in addressing the 805 actions recommended in its previous annual reports issued from 2011 through 2018. “As of March 2019, Congress and executive branch agencies have fully addressed 436 actions (54 percent) and partially addressed 185 actions (23 percent). This has resulted in approximately $262 billion in financial benefits.” But it flags 98 new steps Congress or agencies can take in areas ranging from health care and defense to disaster response contracting and the U.S. Mint. In total, the report specifies 396 actions, including new recommendations and remaining ones from past years, that it estimates could collectively bring tens of billions of dollars’ worth of financial benefits.

Some examples:

• Cleaning Up Environmental Liability: “The Department of Energy could potentially avoid spending billions of dollars by developing a program-wide strategy to improve decision-making on cleaning up radioactive and hazardous waste to address the greatest human health and environmental risks.”

• Medicaid Spending Oversight: “The Centers for Medicare & Medicaid Services could also potentially save hundreds of millions of dollars by improving how it identifies and targets risk in overseeing Medicaid expenditures to identify and resolve errors.”

• A Simple Fix at the IRS: “Congress could provide the Internal Revenue Service the authority to require scannable codes on tax returns prepared electronically, but filed on paper, to improve its ability to combat tax fraud and noncompliance and save tens of millions of dollars annually.”

• A Penny Saved? The U.S. spent about $480 million to produce circulating coins—the penny, nickel, dime and quarter—in fiscal 2017, the report says. “Mint research indicates that the government could save $9.6 million to $16.5 million per year by changing the metal composition of coins, based on fiscal year 2017 coin production volume and costs.”

In a letter to Rep. Elijah Cummings (D-MD), chairman of the House Oversight and Government Reform Committee, Republicans led by Rep. Jim Jordan of Ohio asked that, instead of Democrats’ investigations into the Trump administration, the GAO report be used as a blueprint for the committee’s agenda. In a response issued to Government Executive, Cummings’ staff said, in part, that the committee “has already examined a number of issues raised in the GAO duplication report, and we will continue to conduct oversight of these issues going forward.”

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