Fed Economists: Tax Cuts May Not Add Any Growth At All

JM Ashby
Written by JM Ashby

Even conservative analysis estimated that the GOP's tax cuts would add only a small amount of growth to the economy each year, but some economists now say it may not add any growth at all.

Why not?

Economists at the Federal Reserve Bank of San Francisco say it may not add any growth because our economy was already doing about as well as it could before the tax cuts were passed.

From the Wall Street Journal:

That’s because the changes took effect at a time when the economy was already firing on all cylinders. As a result, there are fewer unemployed workers, spare resources and idled factories ready to kick into action than there would have been during a downturn. [...]

Among the research Messrs. Mahedy and Wilson cited were estimates of the so-called fiscal multiplier, or the response of gross domestic product to changes in tax and spending policy. While some of the research found there was merely a larger impact from stimulus measures during recessions than during expansions, other “literature on fiscal spending multipliers suggests an even smaller boost, as low as zero.”

The Fed economists also wrote that passing the tax cuts while the economy was doing well raises serious concerns that we'll be able to repeat the process when an actual economic downturn arrives.

That certainly seems like a legitimate concern because the GOP's tax cuts are already expected to add $1.5 trillion to the federal deficit and passing some sort of stimulus package during an actual time of need would undoubtedly add a trillion more.

Trump and the GOP campaigned to pass their tax cuts on the idea that the economy desperately needed to be rescued after President Obama left it in tatters, but that was a lie. Republicans say their tax cuts will lead to as much 3 percent growth per year, but the economy was already growing at that rate before Trump was inaugurated and before they passed their tax cuts.

President Obama's policies and the strong economy he left behind are probably the only reason we're not already in a Trump recession. Trump's is playing on borrowed time with his trade war and chaotic foreign policy.

  • muselet

    The sole purpose of the latest tax cuts was to funnel yet more money upward. The sole purpose of any economic initiatives taken by the current Congress between now and the day after the midterm will be to keep the economy from collapsing and hurting Rs’ electoral chances.

    Expect the Rs to denounce the ultra-liberal San Francisco Fed! if our glorious news media bother to pick up on this story.

    The next time the modern GOP cares about the economy as such will be the first time.


    • Badgerite

      There is another purpose to the tax cut and that is to run up the deficit to such levels as to be able to use them as an argument for cutting programs like Social Security, Medicare and Medicaid. Also any other programs benefiting the people that they can think of. Look who they are trying to stack the Court with. People who legal brains are left over from the 1920s and 30s. This cannot end well.

      • muselet


        However, that’s the sort of thing someone at the Heritage Foundation or one of the other ten thousand Righty think tanks (or Paul Ryan) would consider. For the average R politician, “Make donors happy!” is the only reason to get up and put on a dark suit and a stripy red tie every morning.

        And you’re quite right, this cannot end well.