Sorry, Paul Krugman: Investment Surged after Trump’s Tax Cuts


    Sorry, Paul Krugman: Investment Surged after Trump’s Tax Cuts

    Data from the Trump administration show tax cuts boost investment.

    Last month, prominent liberal economist Paul Krugman had a curiosity of a tweet. Krugman dismissed, even derided, the idea that an investment surge like the one the Trump administration had promised from its corporate-tax cuts had ever materialized. But Krugman’s accompanying chart shows a line that supporters of the corporate-tax cuts could be expected to draw. Investment’s share of GDP starts to go up almost exactly when the Tax Cuts and Jobs Act would be expected to cause such an uptick.

    Intrigued, I dug into the data and made a chart of my own. You can view it above. It compares investment just before a business cycle ends to investment right at the start of the business cycle. The timing of a policy relative to the business cycle matters if you’re trying to make sense of its effect on investment: Investment tends to decrease as you move later in the business cycle and, by definition, closer to the next recession. (Recessions serve as the bookends to business-cycle starts and finishes).

    As you can see, after the Trump administration’s corporate-tax cuts, investment’s share of GDP was the highest it had been in the last four quarters of any business cycle since 1990. Its average level over the four quarters leading up to the COVID-19 contraction in Q2 2020, 13.16 percent, was 3.63 percentage points higher than in the business cycle’s first quarter, Q2 2009, when it was 9.53 percent. Yes, the elevated level of investment in the late stages of the Dotcom boom that became a bust in Q2 2001 comes close at 3.42 percent. But if investment late in Trump’s term surpassed that during the Dotcom boom, the data aren’t telling Paul Krugman’s story. They’re telling the tale told by proponents of the Trump administration’s corporate tax cuts.

    Now, to be fair, my chart is unlikely to be the last word on a subject as fraught with complexity and importance as the effects of tax policy. But no one chart is. Not even if it’s from a Nobel Laureate in Economics like Paul Krugman.

    Joseph W. Sullivan served at the White House Council of Economic Advisers as the special adviser to the chairman, as well as a staff economist, from 2017 to 2019.

    Published at Mon, 03 May 2021 22:21:07 +0000

    Attribution – For more Information here is the Article Post Source: