Donald Trump has made clear that his reelection campaign will be based on two pillars–trumpeting his stewardship of the economy while branding Democrats as an angry, unhinged radical socialist mob. Well, one of those pillars now stands on shaky ground. We now have hard numbers that prove the tax reform package that was jammed through Congress in the waning days of 2017 hasn’t come close to doing what Trump and the GOP said it would do.
Jared Bernstein was the chief economic adviser to Vice President Joe Biden during the first two years of the Obama administration. He’s now a senior fellow at the Center on Budget and Policy Priorities. On Saturday morning, he wrote a column for Business Insider arguing that the tax reform package has come well short of Trump’s lofty promises. And he has the numbers to back it up.
Bernstein noticed that the nation’s gross domestic product grew by 2.3 percent in 2019. Although robust on paper, it’s not so robust when you peer into the guts of how the economy did last year. Bernstein pointed out that Trump predicted GDP would grow by three percent in the five years after the tax reform became law–and the 2019 growth rate came up well short of that figure. In fact, GDP growth actually slowed down from 2018 to 2019.
Bernstein actually predicted that economic growth would slow down in 2019. He looked into his crystal ball in November 2018 during an interview on CNBC. Watch it here.
Bernstein predicted that growth would drop below three percent in 2019, to a point closer to two percent. From the looks of it, he was right on target.
In his Business Insider column, Bernstein reminds us that Paul Ryan and the other authors of the tax reform package argued that lower corporate taxes would lead to more capital investment, giving a permanent bump to the nation’s productivity. If that sounds familiar, it’s the basic premise behind supply-side economics–specifically, the idea that tax cuts for corporations will trickle down through the rest of the economy.
Bernstein argues there’s no evidence this has happened. On the contrary, he noticed that business investment actually declined for the third quarter in a row–the longest stretch since the Great Recession.
It turns out that we got plenty of warnings. Take trucking, for instance. The trucking industry has been in a recession since early 2019, and it has since turned into a “bloodbath.” In the first half of 2019, over 600 trucking companies went bankrupt. By comparison, only 175 companies went bankrupt in the first half of 2018. Another tell is manufacturing, which is closely tied to trucking. On paper, manufacturing would benefit from the capital investments talked up by the tax reform proponents. But the October jobs report showed the manufacturing sector actually lost 4,000 jobs.
But wait, you say. GDP actually ticked up in 2018. But according to the Brookings Institution, this was almost entirely because of government spending. To Bernstein’s mind, this proves the tax cut may have been billed as a supply-sider’s dream, but was in practice a textbook case of John Maynard Keynes’ theories in action, since public-sector demand offset a slowdown in the private sector.
Bernstein argues that since Keynesian economics only affect the “ups and downs of the economic cycle” rather than overall growth, such benefits are bound to fade. Apparently that’s exactly what happened.
When the tax reform bill was rolled out, Democrats assailed it as a “tax scam.” These numbers suggest that the Democrats probably weren’t just engaging in hyperbole for the base. From the looks of it, Trump’s economy doesn’t look so robust anymore. And that may not leave him with much to run on aside from fear.
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