Business Investment Plummets Again, Proving Trump’s Tax Law Failed
January 28, 2020
The White House repeatedly cites business investment as evidence that Trump’s tax law is working. Now we know it’s a failure: business investment has fallen over the past year and likely fell again last month after capital goods orders plummeted by the most in eight months.
Business investment likely fell again last month as new core capital goods orders plummeted by the most in eight months.
CNBC: “New orders for key U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter and was a drag on economic growth. The Commerce Department said on Tuesday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.9% last month as demand for machinery, primary metals and electrical equipment, appliances and components declined. That was the largest decrease since April.”
Business investment has been falling since the beginning of last year.
Wall Street Journal: “Business investment grew faster at first, but not dramatically. In fourth-quarter 2018, a broad measure of business investment rose 5.9% over the same quarter in 2017 — the growth rate the CBO said it had predicted when analyzing the tax legislation. But growth soon returned to pre-overhaul levels, and has since all but stalled and even declined from first through third quarter this year.”
The White House repeatedly cited business investment as evidence their tax cut was working.
KUDLOW: “Corporate tax reduction is a good thing. It’s actually, in a modest sense, but we’re seeing a pickup of business investment and productivity in the U.S.”
HASSETT: “Not only is GDP soaring right now but it’s soaring because they’re building factories in the U.S. again. ”
KUDLOW: “Business investment is booming. 9-10% growth in the first half of this year. I believe that’s going to continue. Why do I talk about business investment? Well, that’s the key to productivity which is the key to growth which is the key to rising, real wages and very strong jobs.”
HASSETT: “Because what’s happened is that the capital spending boom that we promised would happen if we passed the tax cuts is underway.”
The White House also said that business investment would lead to increased wages for workers — but economists say wage growth isn’t where it should be.
KUDLOW: “You know, just parsing through some of these numbers, the 4.1 percent quarter, inventory is very low, cap goods booming, business investment spending really booming. That’s a productivity creator. That’s a job creator. That’s a wage creator for ordinary Main Street folks, terribly important.”
HASSETT: “More specifically, Hassett argued the tax cut has unleashed a business investment boom. That spending, he said, is already boosting worker productivity, leading to higher wages ‘because people have better machines to work with. … That means the recovery can last longer, and that’s really, really good for workers.’”
Washington Post: “Average hourly earnings rose by a mere 0.1 percent in December, meaning over the past year, wage growth is at 2.9 percent. Economists say wages are not growing as fast as they should be, especially for those who aren’t seeing a boost from state and local minimum wage increases.”