A new analysis of the Republican tax bill helps explain the bill’s stubborn unpopularity: its economic impact could be “as small as zero.” That means Rep. Steve Knight (R-Palmdale) voted to add almost $2 trillion to the deficit to enact an economic flop.
New research from economists at the Federal Reserve Bank of San Francisco has a grim assessment of the Republican tax bill:
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.
This new analysis is a stark contrast to Knight’s boasts when the bill was signed into law. Knight hyped the GOP tax plan and argued that it would usher in a “new era of American economic resurgence.”
Such rosy outlooks have already been tempered with reality. The nonpartisan Congressional Budget Office (CBO) released an analysis showing a temporary bump in economic growth, followed by years of middling growth.
Yet this new analysis from the Federal Reserve cautions that even moderate growth expectations could be overly optimistic.
“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 research concludes. “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.”
As the Wall Street Journal reports, “the changes took effect at a time when the economy was already firing on all cylinders.” The tax bill’s “procyclical” economic injection happened when America had “fewer unemployed workers, spare resources and idled factories ready to kick into action than there would have been during a downturn.”
Unfortunately, Knight’s vote for an underperforming tax bill isn’t just a disappointment — it also comes at a high cost.
According to the same CBO analysis, the tax bill will add $1.84 trillion to the national deficit, exploding America’s debt. Ironically, Knight’s campaign website laments “unsustainable debt currently being passed on to our children” as both “morally wrong” and “a blatant act of generational theft.”
Rather than the “economic resurgence” he promised, Knight backed what looks to be a $2 trillion, deficit-financed dud.