CEOs in particular gained from buybacks since their compensation typically depends on the price of a company’s stock. When a firm buys back its own shares, the remaining shares become more valuable and the company’s stock price goes up, increasing the wealth of shareholders, mainly people who are already very wealthy. Non-financial corporations used most of their after-tax profits since the tax cuts went into effect to buy back their own shares and pay out dividends.

Corporations just decided to use their additional cash to keep their shareholders happy. The money from the tax cuts obviously went somewhere, just not to investments or workers’ wages. But year-over-year growth in 2018 stayed below the levels shown in early 2015.

GDP growth started to get faster from low of 1.3% in June 2016 and continued to gain strength through 2018 (see Figure above). National Income and Product Accounts.īut didn’t GDP growth accelerate? Not only does GDP growth capture parts of the economy that clearly were not affected by the tax cuts, the data also show no acceleration there, either. Growth Slowed In 2018 Calculations Based on Bureau of Economic Analysis. Federal budget deficits quickly ballooned because there was no faster growth and more revenue to offset the hundreds of billions lost each year to the predictably wasteful tax cuts.

The richest Americans instead got even richer while corporations used a lot of the new money to keep shareholders happy. Without an acceleration in business investment, though, American workers will not see the bumps in pay promised over the longer term. Businesses did not use the windfall of new cash to invest in new machines, technology, office parks and manufacturing plants. And faster economic growth and higher wages would result in more tax revenue, thus paying mainly for itself. Workers would then supposedly see an additional $4,000 per year in wages. These investments, the argument went, would translate into more productivity growth. Showering the richest Americans and corporations even more money was supposed to lead to more business investments. Republicans in Congress and President Trump touted the benefits of Tax Cuts and Jobs Act of 2017 as game changing.

Taxcut premium and business 2017