I’ve written before on the effects of tariffs on our economy, or more specifically the possibility of a trade war that could ensue as a result. We’re not quite in a trade war, but it’s certainly not beyond the realm of possibility. Regardless, it has already affected the bottom line for many US companies, and we’re beginning to see that in the falling stock markets as valuations have plummeted. The one thing that I haven’t talked about here though is the tax cuts that were passed about a year ago.
One thing to get out of the way right off the bat is any notion that the tax cuts were for anybody else but the rich. Those who needed the cuts the least got the vast majority of the spoils, while the lowest income earners saw minuscule decreases in their tax burdens, if at all. On that other forum (the one so susceptible to Russian influence during election time that shall not be named), I said at the time that Republicans were being fiscally irresponsible. They trotted out the same old lines about tax cuts paying for themselves. They said tax revenue would just come magically out of thin air once all those companies started raising wages so high that tax revenues would actually increase.
Well… that hasn’t happened so far, and by my estimation, won’t ever happen. They will be forced to raise taxes in the future, just as the Reagan administration was forced to do a couple of years later after they made massive cuts in taxes. The reason being that whenever taxes are cut, tax revenues predictably go down, and when tax revenues go down, budget deficits go up, and when budget deficits go up, government borrowing goes up, and when government borrowing goes up, the national debt goes up, and then the economy goes straight in the shitter. It’s not fucking rocket surgery here, and simple math should make that apparent to anyone who knows how to count to 10 without using their fingers.
The only reason that tax cuts seem to work at boosting the economy is that for a little while they do in fact boost the economy. However, it’s similar to injecting nitrous oxide into an automobile engine. It will make the engine go much faster and the automobile will cover a lot of ground in a short time, but it’s also burning a shit-ton of fuel in the process. So while it will speed up the economy in the short term, in the long term there won’t be nearly as much fuel left to keep things going and the economy will eventually start to sputter.
Even worse, instead of increasing capital investment like Republicans foolishly expected to happen, most corporations have taken their corporate tax cuts and divvied them out to investors in the form of stock buybacks and increased dividends. In other words, if you weren’t invested in the stock market since Republicans took over Congress and the White House 2 years ago, you probably didn’t get much of a benefit at all from the tax cuts. What’s more, for the vast majority of low to middle wage earners the tax cuts are temporary and will slowly vanish over the next decade. In short, the vast majority of American’s got screwed out of their cut.
Now mix in the possibility of a trade war over tit-for-tat tariffs, and you have the perfect economical shit storm that’s about to rain down on all of us in the near future. Last October’s stock market correction was no fluke, and although I hope that I’m wrong, the damage done will likely manifest itself over the coming months as a bear market. And lest I forget, the raising interest will also take a toll as the era of cheap money comes to an end and begins eating into valuations as well. The Fed, faced with the binary choice of an economic slowdown or runaway inflation, have wisely chosen the former and will continue to apply the brakes.