Don't confuse soaring stocks with real economic growth [View all]

[applegrove]

BY BENJAMIN HARRIS, OPINION CONTRIBUTOR, the Hill

http://thehill.com/opinion/finance/366761-dont-confuse-soaring-stocks-with-real-economic-growth

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The Republican plan forgave hundreds of billions in owed taxes for multinational corporations who had deferred taxes in the past, which — judging by prior experience — will boost share buybacks and the attendant stock prices. The sheer magnitude of the package — with its $1.5-trillion price tag — is certain to boost consumer demand, at least a little, in the next year or two.

But market gains and economic growth are not at all the same thing. With the 2017 gains in the books, and the GOP tax plan signed into law, two questions are on the forefront: One, will the tax cut lead to more growth down the line? And two, is more stimulus coming?

The answer to the growth question can be answered by economic models. Congress’ Joint Committee on Taxation found that the bill would increase GDP by less than 1 percent, cumulatively, over the decade. The Wharton School’s Budget Model puts the annual growth rate from 2028 and 2040 at between 0.01 and 0.03 percent. All told, this is as close to zero extra growth as it gets.

Those who are looking for Congress to provide more stimulus in 2018 should be wary. The only real option here is an infrastructure package, and the odds are slim.


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