Steve Frey
Just as the job market in the NRV has its foot on the accelerator (having been ranked in the top 10 in the country), the news coming out of Washington may be putting the brakes on the national economy.
Yes, there are many sound economic indicators like unemployment numbers, but there are some troubling issues, also.
The GDP, or Gross Domestic Product, rose 4.1 percent and self-congratulations quickly followed in the White House.
But wait, that happened four times during the Obama administration since the 2008 recession, so why such exuberance now? Simple: it confirms the efficacy of the tax cuts in some people’s minds.
That is important because according to a Real Clear Politics study, which takes the average of polls from Gallup to Quinnipiac and everything in between, 43 percent of Americans oppose the tax hikes, while 35.9 percent approve. Most Americans feel corporations benefited excessively.
Exports for items like soybeans contributed quite a bit to that GDP number, but that’s because farmers rushed products overseas to avoid the coming tariffs. That’s a one-time occurrence.
According to the Treasury Department, in the first half of 2018, individual tax receipts have gone up 8.1 percent, but corporate tax totals are down 32.4 percent.
Yahoo Finance reports that corporate tax receipts have declined as a share of all federal revenue, from 17 percent in 1970 to nine percent last year.
So far in 2018, corporate tax receipts represent just 5.6 percent of federal revenue, which is the smallest percentage EVER on an annualized basis.
As for the individual tax cut impact, Yahoo quoted a man whose income is in the top three percent with after-tax pay, rising by about five percent this year due to the tax cuts.
“I got a huge benefit,” he said, “but my daughter, who makes about one-eighth what I make, saw a negligible increase in pay. We should have had a tax cut targeted at the class that’s really hurting.”
This is a typical story.
Also, wages for the middle class have not been increasing. In fact, Moneywatch reports that worker pay in the second quarter dropped nearly one percent below its first-quarter level, and when accounting for inflation, the drop is even steeper. Companies are using their tax savings to buy back shares of stock, not raise wages.
An article in the Chicago Tribune was equally pessimistic regarding individual salaries and the economy saying that “for the first time, the bottom 60 percent of U.S. income earners have fueled recent consumption growth, which accounts for 70 percent of the U.S. economy. Because of flat wages, if inflation rises because of tariffs, the U.S. economy could stall quickly.”
The non-partisan Congressional Budget Office is very blunt about the tax cuts: “The deficit that CBO now estimates for 2018 is $242 billion larger than the one that it projected for that year in June 2017. Accounting for most of that difference is a $194 billion reduction in projected revenues, mainly because the 2017 tax act is expected to reduce collections of individual and corporate income taxes.”
The report goes on to say, “as deficits accumulate in CBO’s projections, debt held by the public rises from 78 percent of GDP (or $16 trillion) at the end of 2018 to 96 percent of GDP (or $29 trillion) by 2028. That percentage would be the largest since 1946 and well more than twice the average over the past five decades.”
So where does the U.S. borrow most of the money to pay the interest on these deficits? You guessed it: China. The tax cut will add another 1.5 trillion to the deficit.
Okay, how about those tariffs? Many Republicans are not supportive of these duties because they see them as an added tax for the consumer. Companies understand this, too, and some, like Harley-Davidson, are moving partial operations overseas to avoid new foreign tariffs.
Get ready for another financial anvil to fall—sort of like being Wile E. Coyote, huh? Are you prepared for the Republican-promised assault on programs like social security, Medicaid and Medicare to balance the budget? How many people in the NRV depend on one of these support programs? Lots.
At the same time, the administration is proposing paying farmers 12 billion dollars to make up for lost revenue from the tariffs the administration unilaterally imposed. Sounds crazy, huh? Keep reading.
The tariffs are going to cost people living in the NRV more for imported goods and raw materials.
At the same time, many companies will be unable to sell products overseas because of retaliatory tariffs imposed by countries due to the administration’s actions.
Of course, the administration and E.U. have agreed to “work toward” eliminating tariffs on most goods, but the details have yet to be negotiated.
If the administration and Congress cut support programs, people in the NRV will have fewer dollars for day-to-day living expenses.
Some believe social security, Medicare and Medicaid are unnecessary; however, many here could not afford food, shelter or healthcare without these programs.
This issue will probably heat up after the midterm elections (expect a big push to vote for safety net supportive candidates), but the way tweets go, it could happen next week.
Perhaps Congress and the administration should have created smaller tax cuts for the wealthy and corporations rather than giving them million or billion dollar tax bonuses.
Perhaps the administration should have negotiated trade agreements before applying tariffs that will hurt middle and lower income people with limited resources the most.
Yes, intellectual property and China being a bad actor should be addressed. Yes, trade imbalances should be corrected through negotiation.
But a tariff war severely debilitating Americans such as farmers doesn’t make sense. To alienate allies and potential allies instead of negotiating in good faith seems counterproductive.
The United States and other countries of the world are economically connected to one another whether we like it or not, and when one variable is tweaked, the reaction in another area can be dramatic. Leaders should know this.
There are undoubtedly potential headwinds and cliffs ahead. America needs to take a step back and reevaluate some of our recent economic decisions.
Remember, no matter how hot the local economy may be, Fed actions guide its direction, and it would seem Washington’s compass might need recalibrating.
Steve Frey is a writer and CEO of Ascendant Educational Services based in Radford.
