San Francisco Fed: Don’t Expect Much From Those Tax Cuts

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

Tax cuts and spending increases can help boost the economy during a recession. But what if the economy is already in good shape? Tim Mahedy and Daniel J. Wilson of the San Francisco Fed review the literature for us:

A burgeoning economic literature has studied whether fiscal stimulus affects the macroeconomy differently in good times than it does in bad times….The predominant research finding is that the fiscal multiplier is smaller during expansions than during recessions….To put the above results in perspective, recall that the CBO, similar to other macroeconomic forecasters, expects the TCJA to boost 2018 GDP growth by around 1.3 percentage points, from 2.0% to 3.3%. The findings by Gross et al. suggest the true boost is more likely to be less than 1 percentage point, while the literature on fiscal spending multipliers suggests an even smaller boost, as low as zero according to some studies.

….Many analysts have forecast large increases in GDP growth over the next two to three years as a result [of the Republican tax cut]. However, recent research finds that the effects of fiscal stimulus on overall economic activity are much smaller during expansions than during downturns. This suggests these forecasts may be overly optimistic.

That’s OK. An economic boost was never the point of the tax cuts. Making rich people richer was the point, and that worked great.

UPDATE: Actually, CBO projected that the Republican tax bill would increase GDP by about 0.3 percent, so their forecast is roughly the same as Mahedy and Wilson. They’ve corrected their paper.

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate