San Francisco Fed economists: GOP tax law will boost economy less than expected

Two economists at the San Francisco branch of the Federal Reserve wrote Tuesday that the Republican tax cut signed into law in December will likely have less of an effect on the economy than forecasters previously thought — and possibly none at all.

In a letter posted on the bank’s website, Tim Mahedy and Daniel J. Wilson wrote that because the tax cuts were largely temporary and went into effect during a period of general economic strength, the intended effects will likely be less noticeable for U.S. companies and workers.

{mosads}”The tax act arrives at a time when the U.S. economy is well into its eighth year of expansion — one of the longest expansions since World War II — with resource utilization considered tight by nearly every measure,” the two wrote.

“Thus, the [Tax Cuts and Jobs Act] is in essence a large, mostly temporary tax cut hitting a hot economy — in other words, the stimulus is procyclical,” they added.

Forecasts of GDP increases over the next few years are overly optimistic, the economists concluded, citing evidence suggesting that economic growth packages are much more effective during times of recession.

“[R]ecent 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,” they wrote.

President Trump has frequently touted the GOP tax plan as a major achievement of his administration’s first year.

“This is the last year Americans will fill out outdated, complicated tax forms,” the president wrote in an op-ed for USA Today in April. “In the years ahead, because I signed one of the largest tax cuts in history and the most sweeping tax reform in a generation, many Americans will complete their taxes on a simple, single sheet of paper.”

The leader of Senate Democrats, Minority Leader Charles Schumer (N.Y.), blasted Republicans on Twitter over the news, calling the bill a “scam” meant to help the wealthiest Americans.

“New report from the Fed finds growth from tax plan could be ZERO percent. Once again, we see the tax bill @realDonaldTrump & the GOP pitched to the American people was actually a #GOPTaxScam for the rich,” he tweeted.

New report from the Fed finds growth from tax plan could be ZERO percent. Once again, we see the tax bill @realDonaldTrump & the GOP pitched to the American people was actually a #GOPTaxScam for the rich. https://t.co/RobYUIac9B

— Chuck Schumer (@SenSchumer) July 9, 2018