In a crowded arena in Fargo, ND, President Trump's hottest fans shouted approval this week as he talked about protecting the US borders, against the Democrats, and "respect for our great, beautiful, wonderful American flag," Trump Turning to the tax bill, his highest legislative achievement, the crowd applauded – but without the fervor they had shown for many of his other applause lines.
Trump signed the tax reduction legislation shortly before Christmas. Six months later it loses popularity
American families are unsure whether they will benefit from the tax cut, and small businesses say they are confused by the complex changes that affect them. A recent survey by Monmouth University found that 34 percent of adults now support the tax cut, a devaluation from January, when adults were roughly evenly distributed between consent and disapproval. And about a third of families say they are better because of cuts, according to surveys by Politico and The New York Times.
It is still too early to say whether the tax cut works, say most economists in the political spectrum. Since the tax cut, especially among business owners, optimism has increased significantly. But this optimism has not yet led to a significant recovery in corporate spending on new factories, equipment and technology.
What is going well after the tax cut
Proponents of tax legislation point to economic growth as a sign of cuts. US growth in the first quarter of this year was 2 percent, the best first quarter since 201
"Six months ago, we triggered an economic miracle by signing the biggest tax cuts and reforms," Trump said Friday at a ceremony to celebrate White House tax cuts.
Tax legislation is not the only factor driving accelerated growth, many experts say, but it's part of the story. The global economy is also performing well, and oil prices have rebounded, resulting in a resurgence of investment in the United States oil and gas industry.
What's Not Good – Until Now
Critics of tax legislation Every Democratic senator voted against the fact that faster growth is likely to be temporary – and that this leads to high costs. Most forecasters, including the Federal Reserve, expect growth to peak in 2018 and return to normal by the end of 2019. In the meantime, the tax law will go into debting the country by more than a trillion dollars over the next decade. according to the Congressional Budget Office.
The success of tax legislation depends on an increase in corporate capital expenditures. If that does not work out, the Trump administration is unlikely to get the 3% growth it forecasts for years to come. Total investment in non-residential buildings was 10.4 percent in the first quarter, compared to 6.8 percent in the last quarter of last year. However, most of the increase was due to investment in intellectual property. Equipment expenses even declined in the first quarter.
"If the tax cut works, it should be reflected in investment, and it's hard to see in investment," said Benjamin R. Page, senior policy consultant Policy Center
Also, wage growth has not accelerated. While the White House frequently spreads announcements that some companies were giving bonuses or pay increases, they were not widely used. Wage growth, according to the Labor Department, continues to be sluggish, as it has been for years after the recession.
"The missing piece of the puzzle is wage growth, yes, we are full employment, but we still see wage stagnation," said Aparna Mathur, a resident scholar in economic policy studies at the conservative American Enterprise Institute.
The stroke of luck for shareholders
Arguably the sharpest criticism of tax laws is that it has benefited a group of Americans so far: the shareholders. The hope was that companies would deduct their extra money from tax savings and invest in new equipment and items that would make workers more productive and increase wages. So far, however, the big companies have mainly returned cash to shareholders.
Share repurchases reached a record high of $ 189.1 billion in the first quarter of 2018, beating the 2007 all-time high before the financial crisis, according to Howard Silverblatt of S & P Dow Jones Indices. The repurchases rose compared to the final quarter of last year by almost 40 percent.
Companies are also giving their shareholders more money through higher dividend payments, which also reached an all-time high in the first quarter of 2018. These payments are expected to hold
"For the remainder of 2018, expectations for record corporate spending on both repurchase and dividends are high," said Silverblatt.
Republicans like Rep. Kevin Brady (Tex.), One of the main authors of the tax bill, argue that repurchases and dividends will drive growth and investment as shareholders turn around and pour money into other projects, including start-ups.
"Not what was expected"
Trump and Republicans argued that cutting the corporate tax rate from 35 percent to 21 percent and allowing firms to write off more of their investment costs would trigger a frenzy of business spending Wages would push up if workers became more productive. So far this has not happened, and surveys among CEOs do not indicate that it will absorb much more from here.
Morgan Stanley has an index that tracks companies' plans for future investment. This week, Morgan Stanley announced a decline in its plans for the future, and declared the United States to be a "surplus" on capital spending, a worrying sign for those waiting to be picked up.
Similarly made the US Chamber of Commerce and accounting firm RSM A recent survey of 393 companies revealed that 38 percent in the next three years will increase investment.
"We did not expect that," said Joe Brusuelas, chief economist at RSM.
Fears in Trade May Dissolve Tax Benefits
Gary Cohn, Trump's former top economic advisor, has argued that it will take time for the uptrend to emerge because companies can not make these decisions without much thought.
But right now, there are a lot of incentives for companies to open their wallets and invest in the future: tax cuts, strong growth and a growing labor shortage that could lead to companies wanting to introduce robots if they do not have enough manpower can find.
Many executives say Trump's trade war leaves them waiting for big investments until they see what happens.
"There is a huge trade issue," said Jamie Dimon, CEO of JPMorgan Chase and head of the Business Roundtable, a business group. Tariffs "are causing increasing uncertainty that could weigh on investment and attitudes."
Cohn warned that Trump's trade moves could ruin all profits from the tax cut. It's a big risk at a time when Trump's tax cuts are still a tough sell-off to the public.
Correction: An earlier version of this story mistakenly reported the level of investment in non-residential buildings for the first quarter. It was 10.4 percent.