One of our economic problems is that large companies are sitting on massive amounts of cash. They aren’t expanding facilities, they aren’t buying other businesses. Presumably, they don’t see anything worth investing in or they don’t feel the need to put that cash to work. Following the cut in the corporate income tax rates of 2017 there was a small bump in corporate investment but not nearly as much as I’d hoped for.
It isn’t just businesses. High-earning individuals are also sitting on record amounts of cash. From Bloomberg:
America’s wealthiest households are stashing their cash at record levels. The top one percent have three times more in readily available cash than the bottom half, with holdings jumping from less than $15 billion shortly before the last recession to a record $303.9 billion at the end of 2018, according to Federal Reserve data released last week. By contrast, while holdings for the bottom 50 percent of households surged almost ten-fold since the pre-recession low, they’ve increased at a much slower pace than the wealthiest cohort.
I felt like we didn’t have enough prior experience to predict what would happen when we had a large tax cut when the economy was already performing well. It isn’t something we have done often (ever?) so who knew? My gut feeling is that it would mostly just go to make the investor class richer and we wouldn’t see much of a bump in the economy. That said, I don’t think we can conclude much with this experiment since we have such chaotic and undisciplined leadership at the top of our government. We have management by tweet. Our prior POTUS couldn’t reach agreements with the opposition because, according to his detractors he was ignorant and inept. Now we have, according to his supporters, the best deal maker ever and a fearless tough guy (I really was laughing while typing that) and we end up with the same result.
To be clear, I think we overrate the influence of government on its ability to influence the economy, but to the extent that it does the uncertainty and ineptitude that starts at the top and then continues to Congress is a factor here. Not even a pro-business, anti-labor SCOTUS can make up for it.
Steve
As you know I opposed the cut in the personal income tax for that among other reasons. I’ve been disappointed in the results of the cut in the corporate income tax which I supported. As I believe you do as well I think the corporate income tax should be abolished because it’s an inefficient tax but, sadly, it’s hard to believe now that what businesses save would be invested.
I would still support eliminating the corporate income tax if nothing else because of the corruption and political influence buying it promotes. It would interesting to see what happened as a result if we had competence in the executive branch and a less tribal Congress.
Steve