President Trump is reportedly planning another tax cut. If so, he should figure out why the first one was a dud.
As a card-carrying supply-sider, I was certain tax reform would at last lift the U.S. economy out of its rut of 2% growth. On Dec. 16, 2017, a few days before he signed the Tax Cuts and Jobs Act, Mr. Trump told reporters: “The economy now has hit 3%. Nobody thought we’d be anywhere close. I think we can go to 4%, 5% and maybe even 6% ultimately.”
But the increase in gross domestic product hasn’t hit 3%. It was only 2.3% in 2017 and 2.9% in 2018, when the cuts kicked in. The U.S. Bureau of Economic Analysis estimates only 2.3% for 2019. Overall, annual GDP growth under Mr. Trump has averaged only a few tenths of a point better than that of President Obama’s second term.The Obama-Trump EconomyAnnualized GDP growth by quarter, 2013-19Source: Bureau of Economic Analysis%2013’14’15’16’17’18’19-2-10123456
I supported the 2017 corporate and personal tax cuts, expecting them to add incentives to work and invest. Businesses were supposed to plow tons of money into new factories and machines. Instead, in 2019, real private nonresidential fixed investment fell.
Economic growth lifts all boats, and it is disappointing—but probably inevitable—that the Democratic presidential candidates have focused on redistribution rather than increasing GDP.
Still, why didn’t the tax cuts have the desired effect? Perhaps they did but were overwhelmed by losses from other policies.
- Tariffs on foreign goods harmed growth by raising prices for consumers and producers and disrupting supply chains.
- Restrictive immigration policies helped cut U.S. population growth to less than 0.5% last year, the smallest increase since the 1918 Spanish flu epidemic. A growing population, especially of working-age immigrants, is crucial to economic growth.
There’s another likely deterrent as well. Mr. Trump’s erratic behavior and penchant for economic and diplomatic isolation have almost certainly dampened the enthusiasm of both foreigners and Americans to devote capital here. Foreign direct investment has dropped for five straight quarters.
The Obama years were hardly brilliant for the economy. After a bad recession, we didn’t get our usual roaring recovery. Instead, we puttered along at little better than 2%. Unfortunately, we’re still puttering along.
Sorry, investors, but there is no sanity clause.
Two years ago, after the shock of Donald Trump’s election, financial markets briefly freaked out, then quickly recovered. In effect, they decided that while Trump was manifestly unqualified for the job, temperamentally and intellectually, it wouldn’t matter. He might talk the populist talk, but he’d walk the plutocratic walk. He might be erratic and uninformed, but wiser heads would keep him from doing anything too stupid.
In other words, investors convinced themselves that they had a deal: Trump might sound off, but he wouldn’t really get to make policy. And, hey, taxes on corporations and the wealthy would go down.
But now, just in time for Christmas, people are realizing that there was no such deal — or at any rate, that there wasn’t a sanity clause. (Sorry, couldn’t help myself.) Put an unstable, ignorant, belligerent man in the Oval Office, and he will eventually do crazy things.
To be clear, voters have been aware for some time that government by a bad man is bad government. That’s why Democrats won a historically spectacular majority of the popular vote in the midterms. Even the wealthy, who have been the prime beneficiaries of Trump policies, are unhappy: A CNBC survey finds that millionaires, even Republican millionaires, have turned sharply against the tweeter in chief.
.. The reality that presidential unfitness matters for investors seems to have started setting in only about three weeks (and around 4,000 points on the Dow) ago.
- First came the realization that Trump’s much-hyped deal with China existed only in his imagination. Then came
- his televised meltdown in a meeting with Nancy Pelosi and Chuck Schumer,
- his abrupt pullout from Syria,
- his firing of Jim Mattis and
- his shutdown of the government because Congress won’t cater to his edifice complex and build a pointless wall. And now there’s
- buzz that he wants to fire Jerome Powell, the chairman of the Federal Reserve.
Oh, and along the way we learned that Trump has been engaging in raw obstruction of justice, pressuring his acting attorney general (who is himself a piece of work) over the Mueller investigation as the tally of convictions, confessions and forced resignations mounts.
.. And even trade war might not do that much harm, as long as it’s focused mainly on China, which is only one piece of U.S. trade. The really big economic risk was that Trump might break up Nafta, the North American trade agreement: U.S. manufacturing is so deeply integrated with production in Canada and Mexico that this would have been highly disruptive. But he settled for changing the agreement’s name while leaving its structure basically intact, and the remaining risks don’t seem that large.
.. Now imagine how this administration team might cope with a real economic setback, whatever its source. Would Trump look for solutions or refuse to accept responsibility and focus mainly on blaming other people? Would his Treasury secretary and chief economic advisers coolly analyze the problem and formulate a course of action, or would they respond with a combination of sycophancy to the boss and denials that anything was wrong? What do you think?
The Debrief: An occasional series offering a reporter’s insightsIn 2014, Donald Trump sued to have his name taken off a pair of Atlantic City casinos he built three decades earlier that had gone bankrupt.
“It’s really indicative of how we all know he thinks so in-the-moment and so off-the-cuff that it winds up being dangerous,” said Jack O’Donnell, former president of the Trump Plaza Hotel and Casino, one of the properties from which Trump removed his name.
.. “The whole idea of once things are going wrong, he takes no ownership — that’s just Trump,” O’Donnell added. “He does not own anything that goes wrong. The problem is, he’ll blame anybody. Obviously, it’s the Democrats in this situation.”
.. He alternated between insisting that Mexico would pay for the wall through a convoluted, and false, interpretation of a new trade deal and suggesting that the U.S. military and other agencies would find money in their existing budgets to build the barrier if lawmakers failed to deliver — despite restrictions on federal agencies reprogramming funding.
.. And the president even began rebranding “the wall,” parrying Democratic denunciations of a concrete monolith at the U.S.-Mexico border by announcing that his administration would build “artistically designed steel slats.” That quickly prompted widespread derision.
.. He even appeared to be conspiring with prominent conservative talk show hosts to help guide him. Rush Limbaugh boasted that Trump had “gotten word to me” that he would shut down the government if he failed to win the wall funding.
By Friday, a desperate Trump had seized on the “nuclear option” proposed by congressional border hawks to discard the Senate’s long-standing filibuster rules and approve with a majority vote a House-passed spending plan that included the $5 billion.
.. Aides announced that he had indefinitely postponed his winter vacation at his Mar-a-Lago resort in south Florida, which was scheduled to begin Friday evening.
.. In the case of his casinos, Trump had divested himself of control of the properties five years before he sued the new owners, having retained a 10 percent stake for the continued use of his moniker.
In his lawsuit to remove his name, Trump asserted that the properties, which twice under his management had faced bankruptcy, had fallen into disrepair and tarnished a Trump brand that “has become synonymous with the highest levels of quality, luxury, prestige and success.”
.. To O’Donnell, the episode was “classic Trump.” The president, he said, had taken ownership of the shutdown in the televised showdown with Schumer and Pelosi to demonstrate his toughness to his base — without a plan to deal with the aftermath.
“That’s really what this was: ‘I’m a tough guy. Don’t think I can’t handle the heat,’ ” O’Donnell said. “The fact is, he can’t handle it.”
The nature of the comedy, it was soon clear, was that here was a group of ambitious men and women who had reached the pinnacle of power, a high-ranking White House appointment — with the punchline that Donald Trump was president. Their estimable accomplishment of getting to the West Wing risked at any moment becoming farce.
A new president typically surrounds himself with a small group of committed insiders and loyalists. But few on the Trump team knew him very well — most of his advisors had been with him only since the fall. Even his family, now closely gathered around him, seemed nonplussed. “You know, we never saw that much of him until he got the nomination,” Eric Trump’s wife, Lara, told one senior staffer. If much of the country was incredulous, his staff, trying to cement their poker faces, were at least as confused.
.. Reince Priebus, the new chief of staff, had, shortly after the announcement of his appointment in November, started to think he would not last until the inauguration.
Then, making it to the White House, he hoped he could last a respectable year, but he quickly scaled back his goal to six months.
.. Kellyanne Conway, who would put a finger-gun to her head in private about Trump’s public comments, continued to mount an implacable defense on cable television, until she was pulled off the air by others in the White House who, however much the president enjoyed her, found her militancy idiotic. (Even Ivanka and Jared regarded Conway’s fulsome defenses as cringeworthy.)
.. Leaking became the political manifestation of the don’t-blame-me eye roll.
.. Bannon tried to explain him as having a particular kind of Jungian brilliance. Trump, obviously without having read Jung, somehow had access to the collective unconscious of the other half of the country, and, too, a gift for inventing archetypes: Little Marco … Low-Energy Jeb … the Failing New York Times. Everybody in the West Wing tried, with some panic, to explain him, and, sheepishly, their own reason for being here. He’s intuitive, he gets it, he has a mind-meld with his base. But there was palpable relief, of an Emperor’s New Clothes sort, when longtime Trump staffer Sam Nunberg — fired by Trump during the campaign but credited with knowing him better than anyone else — came back into the fold and said, widely, “He’s just a fucking fool.”
.. Part of that foolishness was his inability to deal with his own family.
.. Even Donald Trump couldn’t say no to his kids. “It’s a littleee, littleee complicated …” he explained to Priebus about why he needed to give his daughter and son-in-law official jobs.
.. To lose your deputy chief of staff at the get-go would be a sign of crisis in any other administration, but inside an obviously exploding one it was hardly noticed.
.. To say that no one was in charge, that there were no guiding principles, not even a working org chart, would again be an understatement.
.. The competition to take charge, which, because each side represented an inimical position to the other, became not so much a struggle for leadership, but a near-violent factional war.
.. By July, Jared and Ivanka, who had, in less than six months, traversed from socialite couple to royal family to the most powerful people in the world, were now engaged in a desperate dance to save themselves, which mostly involved blaming Trump himself. It was all his idea to fire Comey! “The daughter,” Bannon declared, “will bring down the father.”
.. Scaramucci, a minor figure in the New York financial world, and quite a ridiculous one, had overnight become Jared and Ivanka’s solution to all of the White House’s management and messaging problems. After all, explained the couple, he was good on television and he was from New York — he knew their world. In effect, the couple had hired Scaramucci — as preposterous a hire in West Wing annals as any — to replace Priebus and Bannon and take over running the White House.
.. There was, after the abrupt Scaramucci meltdown, hardly any effort inside the West Wing to disguise the sense of ludicrousness and anger felt by every member of the senior staff toward Trump’s family and Trump himself. It became almost a kind of competition to demystify Trump. For Rex Tillerson, he was a moron. For Gary Cohn, he was dumb as shit. For H.R. McMaster, he was a hopeless idiot. For Steve Bannon, he had lost his mind.
.. Trump, in the estimation of his senior staff, did not have the discipline to navigate a tough investigation, nor the credibility to attract the caliber of lawyers he would need to help him. (At least nine major law firms had turned down an invitation to represent the president.)
.. Everybody was painfully aware of the increasing pace of his repetitions. It used to be inside of 30 minutes he’d repeat, word-for-word and expression-for-expression, the same three stories — now it was within 10 minutes. Indeed, many of his tweets were the product of his repetitions — he just couldn’t stop saying something.
.. By summer’s end, in something of a historic sweep — more usual for the end of a president’s first term than the end of his first six months — almost the entire senior staff, save Trump’s family, had been washed out: Michael Flynn, Katie Walsh, Sean Spicer, Reince Priebus, Steve Bannon. Even Trump’s loyal, longtime body guard Keith Schiller — for reasons darkly whispered about in the West Wing — was out.
Gary Cohn, Dina Powell, Rick Dearborn, all on their way out.
.. The president, on the spur of the moment, appointed John Kelly, a former Marine Corps general and head of homeland security, chief of staff — without Kelly having been informed of his own appointment beforehand.
.. Kelly seemed compelled by a sense of duty to be, in case of disaster, the adult in the room who might, if needed, stand up to the president … if that is comfort.
.. Hope Hicks, Trump’s 29-year-old personal aide and confidant, became, practically speaking, his most powerful White House advisor.
.. the staff referred to Ivanka as the “real wife” and Hicks as the “real daughter.”
.. Hicks’ primary function was to tend to the Trump ego, to reassure him, to protect him, to buffer him, to soothe him. It was Hicks who, attentive to his lapses and repetitions, urged him to forgo an interview that was set to open the 60 Minutes fall season.
.. Instead, the interview went to Fox News’ Sean Hannity who, White House insiders happily explained, was willing to supply the questions beforehand. Indeed, the plan was to have all interviewers going forward provide the questions.
.. The tax bill, his singular accomplishment, was, arguably, quite a reversal of his populist promises, and confirmation of what Mitch McConnell had seen early on as the silver Trump lining: “He’ll sign anything we put in front of him.”
.. 100 percent — came to believe he was incapable of functioning in his job.
At Mar-a-Lago, just before the new year, a heavily made-up Trump failed to recognize a succession of old friends.