The only thing the #SchumerShutdown accomplished was this: It sucked Americans’ attention away from the astonishing benefits rolling off the GOP tax bill. But, alas for Democrats, not for long. The doors opened again just in time for the IMF to provide more validation.
Two days before Senate Minority Leader Chuck Schumer (D-N.Y.) signaled he would not allow Democrats to provide the votes needed to pass a spending bill, Apple announced that due to the tax reforms passed by Republicans, it would bring home a significant amount of cash it held overseas, create 20,000 new jobs, spend $30 billion in capital investments over five years, open another U.S. campus and — in addition — pay $38 billion in taxes due on the repatriated earnings.
They also promised most of their employees a $2,500 bonus in restricted stock grants. Overall, Apple said it would be making a $350 billion “contribution” to the U.S. economy.
{mosads}The announcement thrilled backers of the legislation, who had long criticized the United States’ unique and poorly designed method of accounting for foreign profits as one of the most dysfunctional aspects of our business tax regime.
Some imagined that changing the rules might stimulate companies to do exactly what Apple is now doing: bring cash back to the U.S. and invest more heavily in their home country.
Democrats pooh-poohed that notion and have been resolutely negative about the tax bill, dismissing, among other things, the potential impact from a more mainstream treatment of foreign profits. They have also insisted that corporations would take their winnings from a lower tax rate (down to 21 percent from 35 percent) and use it mainly for stock buybacks and increased payouts to shareholders.
Schumer has famously called the tax bill a “punch in the gut to the middle class” and has not seen fit to change that description even as more than 2 million workers at 220 companies have received bonuses or pay hikes because of the tax cuts. And even though the GOP bill will lower taxes for 80 percent of the country.
The Apple news made headlines but was quickly overshadowed by the government shutdown. The good news for Republicans is that it will take more than a few days of government shutdown to shut up the flow of positive reports.
More validation continues to roll in, most recently from the IMF, which has upped its forecast of U.S. and global growth, crediting the tax bill for the revisions.
The organization now looks for world GDP to expand 2.9 percent in the current year and again in 2019, with both numbers bumped up 0.2 percentage points from the prior forecast issued last October.
In the U.S., growth is now projected at 2.7 percent this year, considerably higher than the earlier 2.3-percent prediction. For next year, the IMF is looking at an expansion of 2.5 percent, against its earlier figure of 1.9 percent.
Those are hefty revisions. The IMF gurus explain that the tax bill will likely usher in higher levels of investment. Economists across the political spectrum have noted that it was the lag in corporate spending during the Obama years that caused productivity gains to stall and stymied wage gains. Higher spending will likely reverse those negative trends.
In other words, just what the tax bill writers have claimed all along. In its recent update, the IMF estimated that the tax bill would add some 1.2 percent to U.S. GDP by 2020. Given that our economy weighs in at approximately $18 trillion, that works out to roughly $216 billion in incremental output.
Keep in mind that the IMF had lowered its forecast for the U.S. economy last October because it didn’t think President Trump’s tax cuts would materialize. That is, they have all along considered the bill to be a significant and positive stimulus.
As the benefits of the tax bill emerge, Americans have become more positive about it. A recent New York Times poll shows that 46 percent of those surveyed now approve of the bill, up from 37 percent when it was passed.
Moreover, whereas Democrats had successfully convinced most Americans that they would not personally benefit from the cuts, leading only 33 percent to say they expected to pay less, now 41 percent thinks they will see lower taxes. That figure is low; wait til more than 80 percent see that they are winners.
Americans may be catching onto the fact that Democrats have smeared the tax bill for political reasons, painting it unfairly as a handout only to the rich and to big corporations. That may be a reason for the bill’s higher approval ratings, and also why the so-called “generic” lead of Democrats over Republicans has shrunk in recent weeks.
A poll conducted recently by NPR-PBS NewsHour reported that when voters were asked which party’s candidate they’d more likely back in their district, Democrats came out ahead by 46 percent, six points ahead of the 40 percent who said Republicans.
A similar survey in December put Democrats in the lead by 13 percentage points. Democrats are optimistic about taking back the House and maybe even the Senate in the fall, but analysts indicate that a party needs a double-digit lead to score a “wave” election.
It’s doubtful that the Democrats increased their standing by pointlessly shutting down the government, though it’s too early to assess what damage, if any, was done. Here’s what we do know: The shutdown only momentarily distracted from the steady stream of good economic news flowing from the tax cuts.
That is positive for the GOP. As James Carville once said, “It’s the economy, stupid.”
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.