Trump’s tax-cut growth gamble could backfire

There’s disappointing news coming out for President Trump, and it has nothing to do with the Russians or the revelations by beautiful women.

The US economy — the one and only thing that got Trump elected — isn’t doing as well as people thought just a month ago. And despite a massively dangerous gambit on cutting taxes, it isn’t doing a whole lot more than under the previous guy.

The Federal Reserve Bank of Atlanta has one of the most closely followed indicators of the economy’s health. Its so-called GDPNow gauge on Feb. 4 had the economy growing at a 5.4 percent annual rate during the first quarter of 2018.

Now that gauge is down to just a 3.2 percent annual gain. And the quarter still has another month and a half to go. So it’s possible that the GDP could be much lower when the first official number is released in late April.

The Atlanta Fed is now more in line with the Nowcast GDP that is produced by the New York Fed, which has the economy growing at 3.11 percent during the first quarter. The two Feds guesstimates, as I’ve written before, had conflicted badly in the past.

Both of those estimates, however, are higher than those of some economists on Wall Street. JPMorgan Chase, for instance, reduced its prediction to an annualized rate of 2.5 percent. It had been at 3 percent until a worse-than-expected inflation rate recently pushed the guess down.

Inflation is only another way of saying that the price of things is going up. And if stuff is more expensive, people can buy less of it, so economic growth suffers.

At the midpoint of the quarter, this is nothing more than a parlor game. But since many expect the tax cuts will lead to an economic surge, it’s a game worth playing.

As anyone who reads this column knows, I was against the cuts. Sure, I like more money in my paycheck. But the danger is the economy wouldn’t grow sufficiently to increase revenue enough to offset the taxes that won’t be collected.

If the tax cuts don’t generate enough revenue, then all sorts of bad things will happen. Government projections already say the tax changes will increase the $21 trillion federal debt by $1.5 trillion over the next decade.

But if growth slows, that figure will be low.

And if annual deficits and total debt increase above expectations, then interest rates will climb and inflation will rise. People will be spending more without buying anything extra. And companies might think twice about some of the lofty expansion dreams they envisioned before the cuts.

My solution was do not mess with tax laws until the economy was doing better. Instead, Washington probably could have gotten the same economic boost — or better — by simply letting Americans have more easy access to the riches that are locked in their retirement accounts.

If all the tax cuts achieve is economic growth of 2 percent to 3 percent, the whole effort was futile — especially as the dangers of higher deficits are still there.

Economic growth was 2.6 percent in the fourth quarter of 2017, and that was before the tax law overhaul. The Trump administration has said it will easily get growth above 3 percent.

That definitely remains to be seen.

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