October 18, 2018 By psekerka
The end of 2017 brought the most sweeping changes to the federal tax code we’ve seen in nearly 30 years. The U.S. Congress, with only GOP votes, succeeded in achieving a years long campaign promise to lower corporate and individual tax rates, while stuffing the tax code with incentives for small businesses to hire and expand their production.
The results? According to investment bank Goldman Sachs, 2018 will be the biggest year for corporate capital expenditures in nearly 25 years. In 2018, corporate investment has increased 19% compared to the year before. The White House Council of Economic Advisors notes that small business optimism is at its highest level since 1983 and blue collar jobs have grown by 3.3% this year, the fastest rate since 1984. And last month, the Bureau of Labor Statistics reported wage growth posted its sharpest jump since June 2009 – a 2.9% average hourly earnings increase from the month before.
What will the impact be at the ballot box this November? While the verdict is still out, it appears minimal. The Department of Treasury notes that 90% of wage earners should expect financial relief from the new tax law. Yet consistent polling shows that around 40% of people do not believe most Americans will benefit from the new tax law. Further, an internal Republican National Committee poll last month showed two-thirds of Americans believe the tax cuts benefit “large corporations and rich Americans over middle class families.”
Given the 24-hour news cycle and voter enthusiasm for other issues, it seems as if the new tax law was passed years ago. For Republican voters, the tax law may have merely met expectations, as it has been promised by the party since 2010. For Democrats, enthusiasm is centered around issues that have traditionally rallied their base: abortion, gender equality, income inequality, health care, and most recently a check on President Trump. A new ABC/Washington Post poll shows the GOP running double digits behind Democrats on which party can better handle immigration, health care, and gender equality. For the first time in years Republicans appear to be on defense regarding health care even though candidates have devoted substantial resources to the issue.
While the election impact of the tax law at the macro level seems to be fading, it could have a significant impact on individual downballot House and Senate races. In a mid-term cycle where everyone knew the GOP would be playing defense, the majority has to run on its record. The challenge for the GOP has always been connecting the strong economy to GOP policies like tax reform and regulatory rollbacks in an effort to close the enthusiasm gap with motivated Democrat voters. What is clear is that the tax law will not become the same albatross as President Obama’s health law that resulted in Democrats losing their House majority in 2010. However, President Trump has fostered enough personal and political disdain to more than lose the majority for his party.
A spokesman for the National Republican Congressional Committee recently noted: “At the end of the day, Republicans do three things: we cut taxes, we kill terrorists, and we confirm judges. When we do those three things, we rev up our base and we appeal to independents.” Having succeeded in all three, Republicans hope this traditional playbook will deliver in a very untraditional political environment.