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Tue May 22, 2018, 09:37 AM

How businesses are really spending their tax cuts


President Donald Trump's tax law was sold as a transformative overhaul that would unlock an ocean of money Corporate America could spend on job-creating investments.
The Republican tax cuts enacted last December immediately sparked millions of one-time bonuses for employees as well as some wage hikes. And the windfall led to a record-shattering stock buyback bonanza that enriched shareholders.

However, the promised investment boom has not materialized -- not yet anyway. Business spending is humming along at healthy levels, but economists see little evidence that the tax cuts sparked an acceleration of investments in new equipment, factories or other projects.

"There is nothing to suggest the tax law is lifting investment in any substantive way, at least so far," said Mark Zandi, chief economist at Moody's Analytics.

One broad measure of business spending, real nonresidential fixed investment, rose by 6.1% during the first quarter. That's solid growth signaling a strong economy. However, it was roughly in-line with the past several quarters. It even marked a slight deceleration from the final three months of 2017.

So mainly stock buybacks and paying down debt. Not much job creation or investments in new equipment. Maybe the GOP will solve this problem with more tax cuts.

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Reply How businesses are really spending their tax cuts (Original post)
IronLionZion May 2018 OP
subterranean May 2018 #1
ProfessorGAC May 2018 #2

Response to IronLionZion (Original post)

Tue May 22, 2018, 10:35 AM

1. This should surprise no one.

American corporations consider it their duty to maximize returns to shareholders above all else. Many of them have calculated that stock buybacks are a more effective way to do that, at least in the short term. Besides, they were already raking in record profits and had no shortage of capital even before the tax cuts, so any job-creating investments they make probably would have been made regardless.

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Response to subterranean (Reply #1)

Tue May 22, 2018, 10:50 AM

2. In Addition. . .

. . .very few beneficiaries of the tax cuts were at full capacity, so if demand did rise, there was no reason to reinvest or take on more staff. The equipment and people they had were already capable of meeting nominally higher demand for goods and services.

It would make no business sense to expand when there wasn't a payback.

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