EFFECT OF THE CORPORATE TAX CUTS, NOT MUCH

I have had an observation that the 2017 Corporate Tax Cuts haven't had much effect.  Much to my pleasure, an article has been published explaining my observation (Quotes are in italics.  You are encouraged to read the whole article.).*

Ever since Treasury Decision 8697 came into effect on Jan. 1, 1997, American companies have largely avoided paying tax on profits from sales outside the U.S. The rule, which was passed more or less by mistake, allowed companies to defer paying tax indefinitely as long as they “reinvested” their earnings in offshore subsidiaries. U.S. companies could not use those foreign profits to pay dividends to shareholders, repay their debt, or do M&A.

This regime encouraged American multinationals to shift reported profits from places where they actually sold goods and services to places with favorable corporate tax codes, most notably Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland. By 2017, the latest year for which we have comprehensive data, roughly 80% of the net foreign direct investment income earned by U.S. corporations came from subsidiaries in those seven tax havens—up from just 30% in 1997.
................................................................
Since the end of last year, however, U.S. multinationals have been able to formally “repatriate” their retained earnings without paying tax. So far, companies have brought back just $184 billion in the first half of 2018. Foreign subsidiaries paid dividends to U.S. parents worth $434 billion, but $250 billion of that was funded from fresh profits earned from offshore sales. .....  At current rates, it would take more than a decade to fully return all of the reinvested earnings stashed in the main corporate tax havens to U.S. shareholders.
..................................................................
After years of steady increases, stock prices have been flat since the passage of the tax changes, while volatility has increased. Tariffs have increased costs and raised uncertainty. Wage growth has continued to accelerate, albeit from a low base.

Together, these forces could have persuaded executives to cut back on investment, M and A [Mergers and Acquistions], and shareholder payouts. It is possible that the corporate tax changes helped offset all this, which would explain why nothing seems to have changed. It is also possible, however, that the tax changes were a pointless transfer that simply gave companies more earnings to retain rather than spend. 

An analysis of the current and coming markets has been made by Liz Ann Saunders.**

I don’t think that earnings growth will persist next year. Unless there is a reversal back up in oil or a big drop in the dollar, the consensus earnings growth estimates for 6% to 8% for 2019 seem too high. There is not an insignificant risk that we move into an earnings recession, like we saw in late 2015 and early 2016. That didn’t turn into an economic recession because it was concentrated in energy. There’s a cushion in energy so that it won’t be as deep as we had in 2015-16, but exports and capital expenditure-tied industries could take a significant haircut from mid-single- digit earnings growth to negative territory. And that’s not in stock prices.
.........................................................................
We are seeing notable deterioration in key indicators, like an upward trend in unemployment, a rollover in ISM [Institute for Supply Management] orders, a lengthening of the average workweek, and housing not looking good. 
.........................................................................
We hit the first wall in 2008. That was the crash. But the only thing that unleashed was a massive deleveraging of households, and we shored up the banking system. The components of debt today are outside the household sector. Corporations have record amounts of debt. That’s not as ugly a story as the numbers tell you, but the public-sector debt hasn’t gotten any better

Although there was great economic enthusiasm at the beginning of the year, enthusiasm has died during the year.  Previously I have said the personal income tax cuts are an inefficient way to stimulate the economy.***  I guess we are finding that corporate income tax cuts are also an inefficient way of stimulating the economy as companies buy back stock, raise dividends, raise salaries of CEOs and other major executives.  They also tend to buy companies that they know nothing about and later return to the "core" business while selling them off at a loss.  They also may pay off bonds they have accrued in borrowing to pay for dividends and other non-productive investments.

* https://www.barrons.com/articles/last-years-corporate-tax-overhaul-hasnt-made-much-of-a-difference-1544226832
** https://www.barrons.com/articles/charles-schwab-strategist-on-stock-market-recession-51544799898
*** http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.htm\
http://stopcontinentaldrift.blogspot.com/2010/07/trouble-with-income-tax-cuts.html
http://stopcontinentaldrift.blogspot.com/2016/09/tax-cuts-and-economic-stimulation.html
http://stopcontinentaldrift.blogspot.com/2017/11/tax-cuts-do-not-pay-for-themselves.html
http://stopcontinentaldrift.blogspot.com/2017/11/tax-cuts-do-not-pay-for-themselves-ii.html