The Trump Tax Cut: Heavy Costs, Little Benefit to the Markets

By ROSS ROSENFELD

“The stock market has smashed one record after another, gaining $8 trillion in value. That is great news for Americans’ 401k, retirement, pension, and college savings accounts.”

So said Donald Trump in his State of the Union Address to Congress on Jan. 30, 2018.

That day, the Dow Jones had closed at 26,076.89. The S&P was at 2,822.43. The Nasdaq composite stood at 7,402.48.

It was just after a month since Trump and the GOP passed a tax bill that was little more than a giant windfall for the wealthy and corporations.

That February, Trump’s top economic advisor, Gary Cohn, told Fox’s Stuart Varney, “One of the real impetuses for our tax reform and tax cut plan was to get real wages to grow in the United States.”

The Trump administration likes to boast about rising wages, yet real wage growth, which accounts for inflation, has barely moved at all.

The Trump tax plan added over $2.3 trillion to the deficit and allowed companies to repatriate some $2.6 trillion. Unemployment is at 3.7% and there over seven million job openings. The number of unemployed workers per job opening is therefore 0.9, the lowest it’s ever recorded. Trump, of course, likes to take credit for this, but it’s clear that the economy was growing steadily before he came into office and that unemployment was already on a downward trajectory from the Obama years.

Still, you’d think it would be a perfect scenario for wage increases. So what’s happening?

It seems that rather than invest in workers, companies would prefer to buy back stock and give out large bonuses. Let’s not forget: we’re living in the age of the “Gig Economy”: a joint study by Harvard and Princeton professors found that 94% of new jobs created between 2005 and 2015 were “alternative work arrangements,” meaning unsteady employment scenarios that give more power to the employer. With the weakened position of unions caused by a series of partisan Supreme Court decisions and the constant attacks of the GOP, workers are left in a terrible bargaining position.

Speaking at a mortgage bankers’ convention, former Fed Chairwoman Janet Yellen put it this way:

“Firms have more market power than they used to, and are resisting wage increases because productivity gains are not very robust. And labor’s bargaining power seems not to be great enough to push wages up at a faster pace.”

The best part is, while the average worker’s wages have been stagnant, the wages of the wealthiest 1% are reaching their highest levels, up 3.7% to a whopping $719,000 a year for 2017.

And so we’ve sold out our future, and for what? A slight boost to an economy that was already doing well and more earnings for the already inordinately wealthy?

The best part is, the tax cuts haven’t helped the markets, all of which are now down for the year as of this writing. The Dow opened the year at around 24,719; the S&P 500 was at 2,674; the Nasdaq stood at 6,903. The closing numbers as of Nov. 20, rounded to the nearest dollar, were as follows: Dow: 24,465; S&P: 2,642; Nasdaq: 6,909. That means the Dow has fallen 1%, the S&P has dipped 1.2%, and the Nasdaq has been flat. If you just go from the State of the Union, it’s even worse: since Trump’s statement, the Dow has fallen 1,612 points, or 6.2%; the S&P has gone down 180, or 6.4%; and the Nasdaq has lost 493 points, or 6.7%.

Not exactly huge growth considering all the things we had to give up. In fact, Mitch McConnell is already blaming the poor for budget shortfalls and looking to cut “Medicare, Social Security, and Medicaid.”

I’d much prefer we cut Mitch McConnell out of the Senate and the GOP tax plan out of our policies.

Ross Rosenfeld is a journalist and author of The Slow Death of American Democracy, available at Amazon. He has written for The Hill, the Daily News, Newsday, and numerous other publications.

From The Progressive Populist, December 15, 2018

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