Trump Tax Cut a Bust for Investment and Hiring

Trump Tax Cut a Bust for
Investment and Hiring
By www.ProfitableInvestingTips.com

When Congress passed the biggest
change in the U.S. tax code in thirty
years, taxes were cut by $1.5 Trillion.
http://profitableinvestingtips.com/profitable-investing-tips/trump-tax-cut-a-bust-for-investment-and-hiring

The promise was that U.S. industry would
invest that money, hire more people, and
raise yearly GDP growth to the 4% range
for the indefinite future.

That did not all seem to have happened
according to recent information.

Was the Trump tax cut a bust for
investment and hiring? Here are some
thoughts on the subject.

Trump Tax Cut a Bust for
Investment and Hiring

Fortune explains why the tax cut has not
sparked hiring or investment.

The Trump administration’s $1.5 trillion in
tax cuts appears to have not made any
major impact on businesses’ capital
investment or hiring plans, according to a
new survey.

A quarterly poll from the National
Association for Business Economics
published Monday found that some
companies reported accelerating
investments because of lower corporate
taxes

but a whopping 84% of respondents said
they had not changed their plans.

That’s up slightly from 81% in the previous
survey published in October, Reuters
reports.

The one bright spot was in goods-
producing companies where half
reported increased investments and a
fifth reported redirecting hiring and
investments from offshore to the USA.

Of S&P 500 companies studied by the
University of Michigan, only 4% planned
to give back part of the tax cut to
workers and a fifth anticipated increasing
their business-related investments.

Small business investment fared better
according to the National Federation of
Independent Business with 5% increasing
their investments while a third increased
employee pay.

Market Watch is bit more cynical, saying
that Trump tax cuts were a bust!

President Trump proclaimed: “It’ll be
fantastic for the middle-income people and
for jobs, most of all.

I think we could go to 4%, 5% or even 6%
[GDP growth], ultimately.

We are back. We are really going to start
to rock.”

A year later, it’s very clear that the tax cuts
boosted gross domestic product and jobs a
bit – and just for one year.

Its effects are fading as U.S. GDP growth
appears likely to weaken in 2019.

The only things that “rocked” were
corporate profits and the stock market.

And we’re facing trillion-dollar deficits as
far as the eye can see.

They report that the increased
investment that did occur went primarily
to technology and intellectual capital and
less to new structures and
equipment. So, where did all of that
money go?

Trump Tax Cuts and Share Buy-
backs

Where the money seems to have gone is
to buy back shares of stock!

Market Watch goes on to say that the end
result was to prop up the stock market.

Companies actually spent more on
buybacks than on capital investments in
2018’s first half, and remember, capex
weakened as the year went on.

Buybacks shrink the number of shares,
boosting earnings per share and
eventually, the stock price.

That helps all shareholders, of course, but
especially corporate executives, more than
half of whose total compensation is in
stock.

What has happened is that company
profits have done very well and by buying
back their stock, companies have
preserved and increased their share
prices.

Employment has increased but barely at
all in the manufacturing sector when
Trump promised.

Most of the new jobs are in the
professional and business services areas
as well as in health care.

Meanwhile the country has shouldered
an additional $1.5 Trillion in debt and likely
see the GDP fall back to 2% this year!

The repatriation of offshore corporate
profits was strong at the beginning of
2018 and has fallen off ever since.

Thus, the huge boom from offshore cash
has not really happened.

US Debt and US GDP

Trump Tax Cut Sugar High

Bloomberg is also negative in regard
about the Trump tax cuts.

They note that wage growth in 2018 was
primarily a result of the temporary
economic stimulus caused by the tax cuts
and will level off or fall as the tax cut
economic benefits fade!

In other words, the most desired effect of
Trump’s corporate tax cuts is very hard to
find in the available data.

So far, what we’re seeing is probably a
sugar high driven by deficit spending.

That’s not terrible, and could even undo
some of the damage done by the last
recession.

But it’s not what the tax cuts are really
supposed to achieve.

What Is in Store for Investors in
2019?

Investors in the stock market were prime
beneficiaries of the Trump tax cut
because companies pumped their tax
savings into share repurchases.

It is of note that so many corporate
executives have stock options as a large
part of their payment packages.

This, of course, makes suspect the
practice of buying back shares to prop up
stock prices instead of expanding their
businesses and hiring more workers.

Unfortunately, the short term sugar high
of the tax cuts will wear off.

The trade war could become permanent
with long term damage to sectors like
agriculture.

We wrote recently about investments to
choose right now.

There is less of a problem if you are
using intrinsic stock value as a guide and
investing for the long term.

There is more of an issue if you are
looking for short term gains at a time
when the tech stocks that previously led
the markets seem to be weakening.

Canary in the Coal Mine?

Industry Week writes
that chipmakers may be harbingers of
things to come in tech.

Investors in Intel Corp. were unpleasantly
surprised by the computer-chip company’s
forecast for relatively flat revenue and
profit margins for 2019.

Fellow chipmaker Nvidia added to the dour
news on Jan. 28 by cutting its expected
revenue.

Well before these disappointments,
however, the U.S. internet superpowers
had already hinted at the chipmakers’
meek results.

The chipmakers may, in turn, be sending
warning signs about slipping growth for
the tech powers.

Intel said last week that the biggest
customers for its computer server chips

titans such as Amazon, Google, Microsoft
Corp. and Alibaba

were “absorbing capacity” from their
stockpiles of previous orders and would,
therefore, most likely hold off on buying
more chips for a few months.

When these companies see leaner times
ahead, they will start looking for ways to
save money.

In the case of tech firms, cutting back on
chip orders is at the base of the economic
pyramid.

We agree that reduced orders for chips
could be compared to the canary no
longer singing down in the mine shaft.
Investors will want to pay attention.

Interest Payments on US Debt

Trump Tax Cut a Bust for Investment and Hiring

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