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Did Trump’s tax cuts boost hiring? Most companies say no

The vast majority of American businesses haven’t boosted hiring or investment as a result of the Republican tax law, according to a survey by the National Association for Business Economics.

Eighty-four percent of businesses said they didn’t accelerate hiring because of the 2017 Tax Cuts and Jobs Act, which President Donald Trump hailed as “a bill for the middle class and a bill for jobs.” Only 6 percent said they had more hires because of the law and 10 percent said they accelerated investments, according to the survey.

Trump and Republicans lawmakers argued the tax cuts would boost jobs and investment. Treasury Secretary Steven Mnuchin said in October 2017 that the tax overhaul would push GDP to a sustained level of 3 percent or higher, leading to “literally millions and millions of jobs.”

Democrats and some nonprofit organizations predicted the tax cuts would not lead to significant job gains and only benefit the wealthy.

The National Association for Business Economics survey appears to show job gains have not been widespread, but concentrated in specific sectors.

Half of the survey’s respondents from companies in the “goods-producing” sector — which includes mining, construction and manufacturing — said they accelerated investments because of the tax cuts. Twenty percent of companies in those industries said they redirected hiring and investment from foreign countries to the United States.

The 2017 law changed the federal tax code to give corporations an incentive to bring money they earned overseas back to the U.S. Previously, the tax penalty was so high that companies often chose to reinvest money overseas to avoid more taxes. It also cut the corporate tax from 35 to 21 percent, generating a corporate windfall that Republicans said companies would reinvest in their workers.

Instead companies put much of the money toward stock buybacks rather than investments. Buybacks hit a record $1 trillion in 2018, a nearly 50 percent increase from the year before.

Some experts argue buybacks are a good use of funds because if companies have too much cash on hand, they are more likely to spend it on risky ventures. Others, however, say stock buybacks disproportionately benefit company executives and wealthy shareholders.

The National Association for Business Economics survey showed some companies did use the repatriated earnings for new investments in the U.S.

Kevin Swift, the chief economist of the American Chemistry Council, and one of the experts who worked on the report, argued that the tax cuts, combined with low interest rates, made investments a smart business decision for goods producers.

Federal data of nonresidential fixed investment, which includes corporate purchases of equipment and software across all U.S. companies, grew at a rate of 1.47 percent and 1.15 percent, respectively, in the first two quarters of 2018. The gains were slightly higher than in the same quarters a year earlier. Investments increased 1.20 percent and 0.94 percent in the first and second quarter of 2017, according to the Bureau of Economic Analysis.

After the tax cuts went into effect, investment grew at a rate of 1.47 percent and 1.15 percent, respectively, in the first two quarters of 2018. Source: Federal Reserve Bank of St. Louis

After the tax cuts went into effect, investment grew at a rate of 1.47 percent and 1.15 percent, respectively, in the first two quarters of 2018. Source: Federal Reserve Bank of St. Louis

“It has worked even better than we expected when we drew it up,” said Stephen Moore, who served as an economic adviser to the 2016 Trump campaign.

Moore also argued that the National Association for Business Economics’ survey questions were too narrow because business leaders rarely attribute their decisions to any one factor.

“But at the margin, when you make it financially attractive to purchase a new truck or invest more in a new company and reduce taxes on that, if you reduce the cost, you are going to get a bigger demand for these things,” Moore said.

Yet the survey findings suggest most companies prioritized stock buybacks over making new investments and hiring more workers.

And there is growing evidence that the tax law’s positive impacts are wearing off.

Nonresidential fixed investment increased only 0.35 percent in the third quarter, a drop from the 1.15 percent increase in the previous three months.

In the first half of 2018, the tax cuts also appeared to boost the nation’s GDP, which Republicans say would buttress the broader economy and lead to more job creation.

According to the Congressional Budget Office, growth is expected to slow this year. The CBO reported today that it expects the U.S. economy to expand 2.3 percent in 2019, down from 3.1 percent last year. The government report attributed the drop to the waning effects of the tax law as well as an expected decline in federal spending at the end of the year.

It is also possible that the effects the tax cuts had on the goods-producing sector, which appears to have seen the largest benefits, could “taper off” in 2019 because of the Trump administration’s trade policies, said Sara Rutledge, a managing director at StratoDem Analytics who also worked on the report.

Seventy-seven percent of all respondents said uncertainty over U.S. trade policy was not affecting their businesses. The “goods-producing” companies were the exception.

About 36 percent of mining, coal and other “goods-producing” companies said they are raising prices in response to U.S. trade policy, 27 percent are delaying investments, and 9 percent said they are delaying hiring, according to the survey. Only 27 percent said there was no change to hiring or investments because of the trade issues.

Tax cuts aside, the National Association for Business Economics survey found businesses are cautiously optimistic about the coming year. The majority of respondents said they expect economic growth to continue at a rate of between 2 percent and 3 percent through the end of 2019, although the number was lower than in previous months.