Why a Trump Tax Cut Promise Is Falling Flat

Plus, US debt issuance heads for a record By Yuval Rosenberg and Michael Rainey A Trump Tax Cut Promise Is Falling Flat Friday’s [GDP report]( showed that the economy grew at a healthy 3.5 percent annual rate from July through September, extending one of the strongest stretches in recent years — and yet it also [reinforced expectations]( that a slowdown is coming. Many analysts expect growth to drop [below 3 percent]( in the fourth quarter and cool even further in 2019. “We think U.S. growth may have just peaked,” Michael Gapen, chief U.S. economist for Barclays Capital, told [The Wall Street Journal](. Those forecasts of a slowdown ahead — meaning more tepid growth, not a recession — are premised on a few factors: - Consumers may have ramped up their spending in the wake of last year’s GOP tax cuts, but the rise is likely to fade over time. - Similarly, the stimulus from this year’s congressional deal to increase outlays by $300 billion over two years is also likely to fade after fiscal 2019 ends next September — unless lawmakers set aside concerns about the rising deficit and once again bust through spending caps. - After posting strong growth in the first quarter of 2018, business investment slowed to just 0.8 percent growth last quarter (or 1.7 percent [excluding oil and gas]( undermining the argument by proponents of the tax cuts that they would unleash a sustained increase in corporate spending. “Since businesses hate few things more than uncertainty, the prospect of an escalating trade war could also be weighing on investment, as executives hold off on commitments to major new outlays,” The Washington Posts’ Tory Newmyer [notes](. “If you put all this together,” writes Matt O’Brien in [The Washington Post]( “you get a picture of an economy that’s growing at around 3 percent right now because of all the short-term stimulus it’s getting, but will soon go back to the 2 to 2.5 percent it was at before because that stimulus isn’t changing companies' long-term behavior like the Trump administration thought it would.” Against that third quarter backdrop, the National Association for Business Economics on Monday delivered some more disappointing news for supporters of the tax cuts: In a [survey]( 81 percent of the groups’ members said that the 2017 tax law has not caused their firms to change hiring or investment plans, up from previous surveys, according to Politico’s [Morning Tax](. NABE surveyed 127 members from September 26 to October 11. (Politico adds, though, that 15 percent of NABE members in goods-producing industries reported accelerated hiring at their firms, 38 percent reported accelerated investment and 38 percent reported redirecting hiring and investment toward the U.S.) “The 2017 Tax Cuts and Jobs Act has not broadly impacted hiring and investment plans at panelists’ firms, although panelists from the goods-producing sector do report some incidence of increased investments, and a shift toward hiring and investments from abroad to the U.S.,” NABE Business Conditions Survey Chair Sara Rutledge said in a statement. It's still [far too soon]( to say definitively that the tax cuts aren’t working, or won’t in the future. The effect of the tax cuts will take years to fully play out, economists say. For now, though, it sure looks like the U.S. economy is experiencing the temporary sugar rush so many economists predicted rather than the structural changes tax-cutters promised. [Share this story →]( Number of the Day: 56 Percent A net 56 percent of respondents to that National Association for Business Economics survey said their firms were raising wages, the highest level in 36 years, [MarketWatch reports](. No respondents said they expect wages to decrease over the coming quarter. Some other key numbers from the survey: - A net 55 percent said sales were rising, the highest since October 1994. Sixty-one percent reported higher sales, while 6 percent said sales were falling - 37 percent reported rising profit margins, the highest since April 2012 - A net 37 percent said they were raising prices, the highest since early 2006. “The share of respondents from the goods-producing sector reporting rising prices is larger than the shares of respondents from the other sectors reporting rising prices,” the NABE said. US Debt Issuance Headed for a Record Bond traders expect the U.S. Treasury to announce record-setting debt sales at the end of the month, Bloomberg’s Liz McCormick [reports]( “Treasury Secretary Steven Mnuchin is set to snatch from Timothy Geithner the mantle of selling a record amount of notes and bonds as he seeks to finance America’s growing budget deficit.” The previous record for these so-called “refunding sales” was set in 2009-2010, when the Treasury sold $81 billion worth of such debt in successive quarters as the economy reeled under the effects of the recession. The conditions this time around are quite different, McCormick notes, with tax cuts and spending hikes creating enormous deficits in a strong economy. “Deficits aren’t going anywhere and Treasury will need to continue to ramp up issuance,” Jon Hill of BMO Capital Markets told Bloomberg. Chart of the Day [MarketWatch]( and cost-estimating website HowMuch.net provide this history of how the U.S. debt has grown to more than $21 billion. Transfer Payments Hit $3 Trillion Annual Pace Total government transfers reached $3 trillion on annualized basis for the first time in September, according to [data]( released by the Bureau of Economic Analysis Monday. Transfer payments include benefits paid by insurance programs such as Social Security and Medicare and means-tested programs such as Medicaid and the Supplemental Nutrition Assistance Program. Americans will receive about 20 percent of their overall incomes from such transfer payments in 2018, Bloomberg’s Alexandre Tanzi [reports](. Social Security payments account for the largest share of government transfer payments (see the chart below), followed by Medicare and Medicaid. Our thoughts on this Monday are with the victims of the massacre at the Tree of Life Synagogue, and our hearts go out to their families and friends as well as to the Jewish community in Pittsburgh and across the United States. Send us your thoughts and feedback by emailing yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( to get their own copy of this newsletter. A Balance Sheet for the Pentagon The Department of Defense initiated its first financial statement audit last December — “the largest and most complex financial audit ever,” according to a recent DoD [report]( on military spending in 2018. Audit results are scheduled to be released on November 15. The chart below, drawn from the DoD report, highlights one component of the audit, providing a summary of the Pentagon’s roughly $2.6 trillion balance sheet. According to the chart, the Pentagon owns $761 billion worth of property and equipment, including 512 “active installations” around the world, more than 14,000 aircraft and 279 “battle force ships.” Liabilities include $2.3 trillion for pensions and health benefits. News - [Military to Deploy 5,000 Troops to Southern Border]( – Wall Street Journal (paywall) - [Republicans Look to Safety Net Programs as Deficit Balloons]( – New York Times - [Tax, Trade Uncertainties Give Wall Street Jitters]( – NBC News - [Fiscal 2019 Could Be 'High-Water Mark' of Defense Spending]( – Government Executive - [Democrats Eye Push for Infrastructure Plan if They Retake House]( – Bloomberg - [Trump Shut Programs to Counter Violent Extremism]( – The Atlantic - [GOP, Dems Offer Sharply Different Closing Arguments for Midterms]( – The Hill - [U.K. Targets Tech Giants With a Digital Services Tax in 2020]( – Bloomberg - [New York Estate Tax Win Opens Floodgates for Millions in Refunds and Future Tax Savings]( – Forbes - [Are Republicans Losing the Health Care Debate?]( – FiveThirtyEight - [Pharma's Friends Stay on the Sidelines]( – Axios - [Will Trump's Push for Flexibility Help Revamp Insurance Markets?]( – Modern Healthcare - [Judge Urges Insurers to Drop Short-Term Plan Rule Challenge]( – Modern Healthcare - [Trump Administration Confirms It Won't Restore Ad Funding for Obamacare for 2019]( – Washington Examiner - [Shopping for Insurance? Don’t Expect Much Help Navigating Plans]( – New York Times - [Boston Red Sox Manager on White House Visit: ‘We’ll Talk About It’]( – The Hill Views and Analysis - [Slump in Capital Spending Hints That Corporate Tax Cut Is Fizzling]( – Rex Nutting, MarketWatch - [The Fiscal Calm Before the Storm]( – Frederico Bartles, Defense One - [Will Trump Really Cut Defense Spending by 5%? It’s Way Too Early to Say]( – Marcus Weisgerber, Defense One - [Trump and the Democrats Are Both Right About the Tax Cuts]( – Stephanie Kelton, Bloomberg - [How Trump's Imagined Tax Cut Could Work]( – David Lerman, Roll Call (podcast) - [Analyzing the Budgetary and Incentive Effects of Senator Kamala Harris’s Proposed LIFT Act]( – Penn Wharton Budget Model - [Trumponomics: Is the Trade War Offsetting the Tax Cuts?]( – James Pethokoukis, AEI - [By Sending Troops to the Mexico Border, Trump Repeats a Costly Obama Mistake]( – Heather Timmons, Government Executive - [Trump’s Cuts to Central America Aid Will Lead to More Caravans]( – Shannon K. O'Neil, Bloomberg - [Health-Care Costs Are Still Eating the US Economy]( – Noah Smith, Bloomberg - [Why Are Drugs Cheaper in Europe?]( – Wall Street Journal Editorial Board (paywall) - [Trump's Plan to Bring Down U.S. Drug Prices Misses Root Causes]( – Thomas J. Bollyky, Axios - [‘It’s Unacceptable’: Sen. Maggie Hassan Explains Her Plan to End Surprise ER Bills]( – Sarah Kliff, Vox - [These Republicans Are Misleading Voters About Our Obamacare Fact Checks]( – Glenn Kessler, Washington Post - [The US Needs to Rebuild the Defense Industrial Base]( – John Adams, The Hill - [When Sports Teams Fleece Taxpayers]( – The Week Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. Our mailing address is: The Fiscal Times 712 Fifth AvenueNew York, NY 10019 [Add us to your address book]( If someone has forwarded this email to you, consider signing up for The Fiscal Times emails on our [website](. Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](