Economic

Weekend Reading: Tax Cuts Saved The Economy?

October 19, 2018

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5 min read

IBD recently penned an article touting the success of the recent tax cuts from the Trump administration.

“The Treasury Department reported this week that individual income tax collections for FY 2018 totaled $1.7 trillion. That’s up $14 billion from fiscal 2017, and an all-time high. And that’s despite the fact that individual income tax rates got a significant cut this year as part of President Donald Trump’s tax reform plan.”

Hold on a second.

A $14 billion increase on $1.68 Trillion in receipts is a very paltry 0.8% increase. This is the 8th LOWEST rate of increase in the history of data and is more representative of population growth rather than the success of tax cuts bringing in more revenue.

In fact, when looking at Federal Receipts on an annualized basis, growth in receipts as of the end of Q2 has fallen by more than 4% annually. Importantly, throughout history, negative growth rates in Federal receipts have been associated with recessionary periods in the economy rather than expansions.

But IBD in their effort to support the Trump tax cuts continues:

“Critics of the Trump tax cuts said they would blow a hole in the deficit. Yet individual income taxes climbed 6% in the just-ended fiscal year 2018, as the economy grew faster and created more jobs than expected.”

Well first, as we have shown previously, the tax cuts DID INDEED blow a hole in the deficit. Currently, the deficit is rapidly approaching $1 Trillion and will exceed that level in 2019.

To IBD’s point, the economy has grown faster than expected and jobs have increased (but not more than expected.)

“Yes, the economy was booming in fiscal 2018. But it probably wouldn’t have been booming without the tax cuts.“

Actually, no.

It wasn’t Trump’s tax cuts that led to this growth but, as we discussed recently with Danielle Dimartino-Booth, it came from a “sugar-high” created by 3-massive Hurricanes in 2017 which have required billions in monetary stimulus, created jobs in manufacturing and construction, and led to an economic lift. We saw the same following the Hurricanes in 2012 as well.

However, these “sugar highs” are temporary in nature. Fortunately, for the economic bulls, a bit of reprieve has come from Hurricanes Florence and Michael which will provide some continued boost to economic growth into Q2 of 2019.

The problem is the massive surge in unbridled deficit spending which provides a temporary illusion of economic growth but leads to long-term economic suppression.

Eventually, the debt will come due.

So, while IBD is taking a victory lap touting the success of the Trump agenda, the reality is that the pro-growth policies were launched to late within an economic cycle. This will ultimately ensure the next recessionary drag will likely be larger and last longer than most expect as both fiscal and monetary policy tools were spent during the boom, rather than saved for an eventual “rainy day.”

Just something to think about as you catch up on your weekend reading list.

Economy & Fed

The Reason Interest Rates Remain So Low by Caroline Baum via MarketWatch
FOMC Minutes Signal Move Above Neutral by Tyler Durden via ZeroHedge
Austerity Hawks Are Coming For Social Security by John Nichols via The Nation
McConnell: GOP Won’t Fix The Deficit by Jordan Weissmann via Slate
Time To Bet On Putin by Simon Constable via Forbes
Fed Minutes: More Rate Hikes Coming by Mike “Mish” Shedlock via MishTalk.com
The End Of Easy Money by Charlie Bilello via Pension Partners
Fed Reserve Obsessions Blinds Market From Dangerous Truth by John Tamny via RCM
Stop Subsidizing Debt by Bloomberg Staff Writers
Two Years Under Socialism Made Me Love Capitalism by Dov Fischer via American Spectator
The Economic Cycle That Just Won’t End by John Rekenthaler via MorningStar
Trump Vs. Fed: When Markets Crash, Who’s To Blame by Brandon Smith via Alt-Market

Markets

Guggenheim: Expect Risk Off In 2019 & A 40% Decline by Tyler Durden via Zerohedge
There Are Big Changes Afoot In The Markets by Joe Calhoun via Alhambra Partners
Analyst Who Predicted 2008 Crash Warns Of Next Bubble by Barbara Kollmeyer via MarketWatch
Gundlach’s Best Investing Advice by Karl Kaufman via Forbes
Are Credit Spreads Still A Leading Indicator by Pater Tenebrarum via Acting Man blog
Highly Unusual Breadth by Dana Lyons via The Lyons Share
Why You Should Be Skeptical About Forecasts by Erik Conley via Zen Investor
Market Carnage Has Investors Fleeing Bonds by Ryan Vlastelica via MarketWatch
Tuesday’s Big Upside Move Was A Sucker’s Rally by Michael Markowski via BullsNBears
There Are A Lot Of Stocks Down 50% From Highs by Philip Van Doorn via MarketWatch
When Will Chasing Hot Stocks Stop Working by Kevin Muir via The Macro Tourist
Market Corrections Aren’t Fun, But Normal by Jonathon Trugman via NY Post
Markets Are Broken & Nothing Is Working by Robert Burgess via Bloomberg

Research / Interesting Reads

The US Housing Recovery Is Built On Quicksane by Keith Jurow via MarketWatch
The Big Blockchain Lie by Nouriel Roubini via Project Syndicate
Hello! May I Assist You With A Lifetime Of Debt? by Elena Valenzuela-Stookey via NYT
GE’s Looming Dividend Cut by Political Calcuations
Art, Tech Stocks & The Financial Canary’s Last Gasp by Merryn Somerset Webb via MoneyWeek
China’s Great Leap Backwards by Jonathan Tepperman via Foreign Policy
Is Your Bank Ready For The Next Crisis by William Bladwin via Forbes
The “No Growth” Prescription For Misery by Bjorn Lomborg via Project Syndicate
5-G – The Most Disruptive Event Is Here by Stephen McBride via Risk Hedge
Bad Financial Moon Rising by William White via Project Syndicate

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Weekend Reading: Tax Cuts Saved The Economy?

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