After being rumored and talked about for over a year, at the end of last year the tax cuts were finally delivered. The idea had captured much market attention during that often anxious period of political flirtation. Prices would rise or fall by turn based on whether or not it seemed a realistic possibility.
Public Law #115-97 or An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 amended the Internal Revenue Code of 1986 to among other things reduce the tax rate on almost all of the tax brackets. The income definitions of several of the brackets themselves were also edited. Colloquially known as the Tax Cuts and Jobs Act of 2017 (TCJA), it was widely celebrated by economists (factoring partisan affiliation).
The White House predictably lauded its passage and has since produced a vanilla, vague list of what administration Economists expect from it. It “will help spur more business growth and job creation, benefiting American workers.” There isn’t a tax or economic package that isn’t described in exactly this way by any administration of whatever party in history.
Economists at JP Morgan were a little more specific. They were, as you would expect, equally enthusiastic about the law. In early January 2018, they claimed:
The cuts for individuals are set to expire in 2025, making their long-term impact uncertain. But in the near term, a windfall for households could translate into a consumer spending surge. Since the consumer sector comprises approximately two-thirds of the US economy, more money in the hands of individuals is likely to spur further growth.
Four months of data is certainly not conclusive on the matter, but it’s enough of a start to start questioning these expectations. The Census Bureau’s Retail Sales estimates for April 2018 were comprehensively ugly (again). Year-over-year, total Retail Sales rose by just 3.8% unadjusted. That’s way too close to the 3% recession level that US consumers aren’t able to push away from.