This news site has argued for months that the tax relief passed by the “Republican” congress and signed into law by U.S. president Donald Trump last December failed to provide sufficient amounts of relief – and failed to target the relief it did provide where it was (is) needed most, middle income earners and small businesses.
“Tax relief must stimulate investment, to be sure – and there is certainly a need to reduce America’s punitively high business tax rates,” we noted in our original assessment of the GOP tax plan last November. “But tax relief must also act to stimulate the consumer economy – which continues to struggle.”
In mid-December – when it became clear “Republicans” were targeting the majority of tax relief to the uber-wealthy and large corporations (and failing to cut government spending in conjunction with the plan) – we offered up an even blunter assessment.
“This is not the tax relief Americans were promised in 2016, nor is it likely to produce the level of economic stimulus our nation desperately needs to escape the shackles of the Great Recession,” we wrote at the time.
As the tax cuts took effect, we continued to take note of these trends …
“Relief to middle class taxpayers simply wasn’t as sizable or as broadly distributed as it should have been – especially if the goal of the tax relief was to stimulate the consumer economy,” we wrote in recapping the plan back in February.
Were we right?
It’s probably still too early to tell, but back-to-back whiffs on the employment front (here and here) along with a disappointing first quarter gross domestic product (GDP) print are certainly weighing heavily on what’s left of the economic optimism associated with tax relief.
What probably won’t help? This week’s news from the U.S. Department of Commerce (DOC) that retail sales rose by a modest 0.3 percent in April from the previous month (which saw a 0.8 percent increase).
Rising gas prices appear to be cutting into discretionary spending – which could temper the stimulative impact of the tax cuts (such as it was).
And to think … Trump wants to raise the gas tax?
Analysts believe consumer spending is growing at an annualized rate of 2.5 percent during the second quarter – up from an anemic 1.1 percent uptick during the first quarter.
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Is that good enough? No …
Lindsey Piegza, chief economist for Stifel, took a dim view of the data.
“Earlier weakness was explained away by seasonal or unfavorable winter weather but the continued moderate pace into (the second quarter) suggests there was more than Mother Nature at work forcing consumers to tighten their purse strings early on at the start of the year,” Piegza said. “The disappointing impact from tax reform coupled with still modest wage growth were likely the key components for less-than-stellar spending activity.”
Indeed. And “less-than-stellar spending activity” – should it continue – is a recipe for the sort of sustained sluggishness our economy can ill afford right now.
Again, it’s too early to whip out the “told ya so” card when it comes to the GOP tax plan … but we continue to believe the lack of sustained economic stimulation is due to the fact “Republicans” didn’t cut taxes enough (and didn’t cut them where they should have).
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