Give and Take (Craig Douglass On Consumers)

by Craig Douglass  on Monday, Aug. 6, 2018 12:00 am   3 min read

Are tax cuts conservative or liberal? Or somewhere in the middle? The answer may be informed by to whom the tax cuts are directed, whom they benefit: upper-income households, defined by Pew Research as having annual income of $118,000 and above; households earning between $40,000 and $118,000, which Pew says is “middle class”; or the rest of America, working or not. (The national median household income in 2016 was $55,775.) These American demographic groupings benefit in different ways from different types of tax cuts.

Another question: Are increased tariffs on products imported to the United States from business and industry in other countries conservative or liberal? The long-held conservative position preferred fewer tariffs, not more. Free trade. Very Reaganesque.

But not today. Economic policy, if there is a policy, appears to be non-ideological. Let’s call it whimsical. (And that’s all we’ll say about that.) However, tariffs — or so-called trade wars — have an impact on consumers, regardless of your political leanings. So do tax cuts.

Here’s the seeming paradox. The current executive administration in Washington, along with its majority-held legislative counterpart, passed major tax cuts — without compensating spending reductions or supplemental revenue. And those tax cuts have generated private and corporate cash at significant levels.

Now, economists will debate the tax cuts’ contributions to the general economy, meaning whether or not middle-class households will be enriched. Let’s assume for our argument here that most will have more money in their pockets through the tax cuts. If so, good for us (the long-term impact of growing budget deficits and national debt notwithstanding).

But now come tariffs, tariffs that increase consumer costs on a wide range of products purchased everyday in America. Not to mention the increased cost of American exports — grown and made — which suffer from offshore retaliatory tariffs coming the other way. Farmers’ incomes are suffering.

So, as John Harwood at CNBC observed, we have a reduction in the taxes Americans pay and an increase in the prices of products Americans buy. Or, more clearly stated by U.S. Sen. Ben Sasse, R-Neb.: “This is dumb!”

Let’s look at some credible (my word) analysis. Moody’s Analytics figures that members of the middle class will enjoy a tax cut, on average, of $930 by the end of this tax year. Tariffs will cost these workers roughly $210. Add to that motor fuel increases of $320 coming in part from the throttling of Iran oil due to the canceling of the Iran nuclear deal and the reimposition of sanctions, and the tax cut-related windfall has now been cut more than half. One more thing. Starving the Affordable Care Act has contributed to a rise in health care premiums by $612. Now you’re $212 in the hole for the year. All estimates, of course. But you get the bigger picture.

Remember the “rest of America” reference above? Those households earning less than $40,000 a year? Their tax-cut benefit will average only $60. The math won’t work at all for them. As I’ve read on Twitter, “Sad.”

Paul Krugman, the Nobel Prize-winning economist and nationally syndicated columnist, recently related the “parable of the soybeans” — particularly relevant for Arkansas and a demonstration of how tariffs from us create a backlash to us. The column opined, “More than half of America’s soybean exports typically go to China, but Chinese tariffs will shift much of that demand to Brazil.” The result, Krugman’s research revealed, is a possible temporary surge in soybean exports. Hope so. But regardless of the projection, the fact is that soybean prices have collapsed.

Main Street consumers and Wall Street investors dislike uncertainty. Any household budgeting and longer-than-a-quarter corporate planning are practically impossible. While we appreciate the notion of “America first,” paying attention to our personal and national needs means understanding the connectivity of the world, and world markets, and making policy based on thinking locally, but acting globally.

Right hand. Left hand. Give and take. Unintended consequences. Sad, indeed.


Craig Douglass is an advertising agency owner, and marketing and research consultant. He is president of Craig Douglass Communications Inc. of Little Rock. Email him at Craig@CraigDouglass.com.

 

 

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