Tax bill fail: Economic growth falls short of Rep. Steve Knight’s boasts

Congressman Steve Knight

Forty percent of companies won't increase spending even after receiving massive tax giveaways from the unpopular tax bill backed by Congressman Steve Knight.

The rationale given for the $2 trillion, deficit-financed tax bill was that companies would increase investments, thus providing “rocket fuel” to the U.S. economy. But despite big promises from politicians like Congressman Steve Knight (R-Palmdale), the economic data show a different story.

“If the tax cut is working, it should show up in investment,” said Benjamin R. Page, a senior fellow at the Tax Policy Center. “And it’s hard to see it in investment.”

The Washington Post explains in more detail:

The success of the tax bill hinges on a surge of corporate capital spending. If that doesn’t come through, the Trump Administration is unlikely to get the 3 percent growth it’s predicting for years to come. Overall non-residential business investment was 10.4 percent in the first quarter, up from 6.8 percent in the final quarter of last year, but most of the increase was driven by intellectual property investment. Spending on equipment actually fell in the first quarter.

A new survey showing 40 percent of companies “anticipate no changes in spending at their companies,” giving further evidence that the unpopular tax bill is not living up to the hype.

Knight vowed the tax bill would “allow American companies to compete globally and bring jobs and resources back home.” On his social media accounts, Knight regularly brags about anecdotal stories related to the tax bill, but comprehensive economic data gives a much fuller picture. And reality is starkly different from Knight’s rosy outlook.

The economy continue to increase job growth at a steady clip, albeit at a less robust pace than the end of the Obama administration. According to FactCheck.org, “the average monthly gain under Trump is 181,000 jobs, which is nearly 17 percent below the monthly average of 217,000 during Obama’s second term.”

When looking at whether the tax bill has had an impact on job growth, Gary Burtless, an economist with the Brookings Institution, said, “job growth since December 2017 does not look exceptional compared with job growth throughout the current economic expansion.” Burtless added, “it is not very convincing to claim recent job growth has been particularly remarkable.”

Economic data from the Bureau of Labor Statistics shows real average hourly earnings are declining for workers.

Companies have received lavish praise for flashy press releases about one-time bonuses for workers. But companies are spending significantly more on stock buybacks which “help enrich corporate executives, whose compensation is often linked to their share price,” reports CNN. The discrepancy between bonuses and stock buybacks is staggering.

According to one study cited by CNN, “the $436.6 billion of buybacks announced during the second quarter would have paid for a $1,000 bonus check to be sent to 6.8 million workers — every single trading day.

While CEOs and wealthy Wall Street titans are cashing in, but a recent analysis shows the broader American economy may not benefit from the tax bill at all. Economists from the Federal Reserve Bank of San Francisco recently reviewed decades of research that suggests the impact of the bill may be “as small as zero.”

Any way you slice it, the tax bill championed by Knight is a huge letdown.