Economist Paul Krugman analyzed the effects of President Donald Trump’s massive tax cuts for the rich one year after they were signed into law, and he was not impressed.
As you may recall, Republicans passed the tax gift for the wealthy and corporations just before Christmas in 2017, arguing that the cuts were necessary to stimulate economic growth.
One year later, however, the deficit and debt has skyrocketed and the stock market continues to experience massive losses as interest rates and prices rise and retirement accounts shrink. Many companies have also responded to getting a tax cut by laying off thousands of workers rather than hiring like Trump promised.
On Friday night, Krugman took to Twitter to blister the tax cuts and the largely negative impact they have had thus far, and predicted more economic struggles ahead.
First, he noted that Wall Street is very unhappy:
Well, the stock market doesn’t seem too happy. Does this mean recession? No. But it does look as if Trumpophoria is fading, which makes this a good time to ask how that tax cut — the only major legislation Trump will pass — is going 1/
— Paul Krugman (@paulkrugman) December 14, 2018
Krugman conceded that the United States experienced fast growth in two quarters this year, but observed that the honeymoon is over because that growth has slowed down and that it didn’t make much difference in overall GDP:
Trumpistas made a lot of the fast growth in the 2nd and 3rd quarters, which is silly — short-term growth fluctuates a lot. But for what it’s worth, “nowcasting” — early estimates of GDP — suggests a slowing underway. Here’s @stlouisfed, which is typical 2/ pic.twitter.com/ypQyz8FLuz
— Paul Krugman (@paulkrugman) December 14, 2018
To a rough approximation, then, whatever bump in growth we got over the past year is most of what we’ll ever see. Now, annual growth including those two good quarters was 3 percent. But that should be compared with a baseline of normal growth, maybe 2 percent 3/ pic.twitter.com/kS2TLcrg8p
— Paul Krugman (@paulkrugman) December 14, 2018
So let’s say GDP is 1 percent higher than it would have been absent stimulus. But what were the sources of stimulus? Yes, there was a big tax cut — around 1 percent of GDP 4/ pic.twitter.com/6bgFRTtEjz
— Paul Krugman (@paulkrugman) December 14, 2018
Krugman also pointed out that government spending went the wrong directions under Trump and former President Obama. Republicans obstructed and complained about the deficit enough to force Obama to curb spending during his term even though increased government spending is a good response to a recession. But when Trump took office, Republicans disregarded the deficit and spent money like drunken sailors even though the economy had largely recovered under Obama’s leadership and policies, the opposite of what government should do when the economy is stronger:
But that wasn’t the only thing going on — there was also a real pickup in government spending; after imposing austerity under Obama despite high unemployment, Rs now spending despite low unemployment 5/ pic.twitter.com/oeVHVilLai
— Paul Krugman (@paulkrugman) December 14, 2018
What this all looks like to me is a small payoff given the bulge in the deficit — a multiplier well under 1 even in the short run, and likely to shrink further as higher interest rates take their toll. 6/
— Paul Krugman (@paulkrugman) December 14, 2018
Indeed, even Trump knows that higher interest rates are going to take a toll on the economy, but his trade policies and tax cuts are forcing interest rates to rise.
Krugman concluded by mocking the “investment boom” Trump said his tax cuts would generate:
Oh, and what about the great investment boom the tax cut was supposed to unleash? It’s looking about as real as Trump’s wall. fin/
— Paul Krugman (@paulkrugman) December 14, 2018
The bottom line is that Trump and Republicans lied about the tax cuts and America is paying the price for it. Republicans cannot be trusted to be good stewards of the economy and the only way to remedy the damage they have done is to vote in 2020 for a Democratic Senate and a Democratic presidency.
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