E The US Tax Reduction Was Supposed To Boost Productivity And Investment; It Hasn't

“Last December (2017), Republicans relied on the support of conservative economists who predicted that the party's corporate tax cuts would boost productivity and investment in the United States substantially. The forecasts were wrong, and the silence of those who made them suggests that they knew it all along…Proponents of the bill nonetheless claimed that we would see enough additional investment to boost growth by 0.4% per year. That implies an increase in annual investment of roughly $800 billion – that is, an increase from 17.5% to about 21.5% of GDP. (J.B. Bradford Delong, The Great American Tax Heist Turns One, Project Syndicate, Dec 14, 2018) 

“There are several effects of the Tax Cuts and Jobs Act that are quite clear. First, there is a large tax cut in the short term. According to the Joint Committee on Taxation, the nonbusiness individual income tax provisions will cost around $60 billion in FY 2018 and around $160 billion in FY 2019. The business provisions have a similar revenue cost. So, to a first approximation, this is a large, stimulative tax cut in the short term…And these tax cuts are tilted toward those with the highest incomes. Tax Policy Center estimates indicate that the short-term tax cuts as a share of after-tax income increase throughout the population as income gets higher.” (Mark J. Mazur, Reflections On The Tax Cuts And Jobs Act, Joint Economic Committee Hearing on “Unleashing America’s Economic Potential” April 11, 2018)

Productivity in the US, or output per hour of work, has been unusually weak throughout the current economic recovery. Moreover, analysts have been unable to come up with definitive reasons for the productivity growth slowdown.

The productivity growth lag is very important, since productivity and the average standard of living (output per person) are almost identical economic terms. Indeed, the growth in labour productivity, or output per worker, is probably the single most important variable in an economy.

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