The unpopular Republican tax bill could very well be a $2 trillion deficit-financed dud, according to new research from economists at the Federal Reserve Bank of San Francisco. The research contradicts the promises made by Congresswoman Mimi Walters (R-Irvine), who boasted the bill would “generate significant economic growth.”
Economists looked at decades of research on the impact of “procyclical” fiscal stimulus. In other words, “the changes took effect at a time when the economy was already firing on all cylinders,” reports the Wall Street Journal.
“As a result, there are fewer unemployed workers, spare resources and idled factories ready to kick into action than there would have been during a downturn,” the Journal stated.
After examining decades of data and research of others, the conclusion of this analysis was significantly less optimistic than other projections:
To put the above results in perspective, note that a number of macroeconomic forecasters expect the TCJA [Republican tax bill] to boost 2018 GDP growth by around a percentage point. The literature discussed above suggests the true boost is more likely to be well below that, as small as zero according to some studies.
Some other analyses predict a more moderate economic boost from the tax bill. For example, the nonpartisan Congressional Budget Office (CBO) recently increased their projection of GDP growth in 2018 from 1.3 percent to 3.3 percent, in part because of the tax bill. However, the CBO projects growth to quickly taper off, dropping to 2.4 percent in 2019 and then averaging just 1.7 percent from 2020-2026.
But economists at the Federal Reserve caution that these uninspiring projections are actually much too rosy. “Many analysts have forecast large increases in GDP growth over the next two to three years as a result [of the Republican tax bill],” the economists note. “However, recent research finds that the effects of fiscal stimulus on overall economic activity are much smaller during expansions than during downturns. This suggests these forecasts may be overly optimistic.”
In order to pay for a tax bill that may not produce any economic growth, Walters and Republicans will add almost $2 trillion to the national deficit, according to the same CBO analysis noted above.
Whilethe result may be a bust for the overall economy, the Walters-backed tax bill is a boon for wealthy Wall Street investors. Rich corporations are lavishing Wall Street with record-setting stock buybacks and dividends, “help[ing] enrich corporate executives, whose compensation is often linked to their share price,” according to CNN.
“The tax cuts were supposed to unleash economic growth and increase jobs,” reports Quartz, a news outlet focusing on business and the economy. “But so far they’re mainly goosing profits.”
Walters boasted “the American economy will flourish,” because of the tax bill.
In reality, the only thing that may flourish because of the tax bill (other than Wall Street bank accounts) is America’s exploding debt.