Money taken out of the economy

Bernie Sanders described the US tax bill as “A disaster for the American people.” He said it was “a barely disguised reward for billionaire donors” (of the Republicans). For many left-wingers and some Keynesians it represents what they call “money taken out of the economy.” US Democrats predicted the tax cuts would benefit only shareholders because corporations would pass the money on to them in the form of increased dividends. Presumably if it had, they thought the recipients would have burned it, because to invest it or even spend it would have put it back into the economy. It might be that critics of the bill mean money taken out of the public economy, not counting private investment or family budgets as part of the economy.

What has happened so far, only weeks since the tax bill passed, is that over 300 companies have announced bonuses for over 3 million workers, with an average bonus of about $1,000. That represents $3bn into the private budgets of US workers. US corporations have also announced $110 billion in new investment in plant and equipment. Apple alone is going to incur a one-off $38 billion tax charge as they repatriate hundreds of billions to the U.S., with initial investment plans of $30 billion.

Sanders also said that “trickle-down economics has never worked.” He may be right about this, since I have never encountered any economist who believed that it did, or any who thought it had ever been tried. Trickle-down economics is a Straw Man fallacy of the Left, who seem to suppose that neoliberals believe that when rich people spend more money, they boost jobs for people working in restaurants or building luxury yachts.

In fact neoliberals hold that it is investment, not spending, that creates jobs. Extra money in the hands of those comfortably off might be more likely to increase investment rather than spending. Even money put into bank accounts will most likely go into investment. Still in its early stages, it looks very much as though the US tax bill will boost economic growth as intended. When that does happen, the critics will no doubt find other explanations for it.