Trump Economy on Pace for 3%
Growth, but Tax Cuts Aren’t the Reason
The U.S. economy is still expanding at a solid pace, with
third quarter GDP growth hitting 3.5 percent according to an initial estimate released by the
Commerce Department Friday.
Growth has eased a bit compared to the previous quarter,
which registered 4.2 percent, but economists say it is still well above the
post-recession trend and strong enough to produce the best annual growth
rate since before 2008. “Analysts had expected the economy to slow somewhat
after a blockbuster second quarter,” The New York Times said, but “the economy remains on track
to grow 3 percent or more this year, the first time it has achieved that
pace since 2005.”
The Trump administration takes credit: Commerce
Secretary Wilbur Ross attributed the strong growth to Trump administration policies.
“Defying ‘conventional wisdom’ once again, 3.5 percent growth is the latest
sign that the Trump economy continues to surge,” Ross said. “The President’s actions from
deregulation to tax reform have supercharged the American economy, driving
it to new heights.”
But the picture is more complicated: Experts
said the solid topline number obscures some potentially troubling data
within the report. Consumer spending was a key factor, rising 4 percent in
the quarter, but a big drop in exports and “a steep slowdown in business
spending raised concerns about whether the strength in the expansion is
sustainable,” Bloomberg News said. Ian Shepherdson, chief economist at
Pantheon Macroeconomics, summed it up this way: “Strong GDP growth hides
soft capex and massive trade deterioration.”
Where is the tax cut investment bump? Consumer
spending probably got a boost from the individual tax cuts, but business
investment — the most important factor associated with the Republican tax
plan and the one that was supposed to drive a big increase in capital
investment and, eventually, wages — is showing no signs of a boom. The rate
of business investment was the weakest since the fourth quarter of 2016,
The Wall Street Journal said. Non-residential fixed investment
grew at a 0.8 percent pace, and the Economic Policy Institute said that such investment is growing
more slowly in the first three quarters of 2018 than it did in the same
period in 2017 — before the tax cuts went into effect.
One factor stands out: Government
spending is playing a major role in the current economic expansion. Earlier
this week, The Wall Street Journal wrote, “A stark pickup in
government spending, particularly in defense, has helped fuel a broad
acceleration in U.S. economic growth in the past year and a half,” with the
sharp uptick in outlays associated with the budget deal earlier this year
accounting for nearly half of the economic growth during that time.
Friday’s GDP report provides more support for this thesis, with government
spending rising more than 3 percent in the quarter. “For now, government
largess is helping to lift the economy,” the Times said. Financier and former Obama
administration official Steven Rattner highlighted the government spending
factor in a tweet: “Note the resurgent
contribution to growth from government spending which added 0.6-ppnts over
3Q with both defense and non-defense on the rise. The budget deal passed
earlier this year supports continued growth through FY19.”
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Five Takes on the Economy
Some other comments from economic analysts on today’s GDP
report:
Paul Ashworth, chief US economist at Capital
Economics: “The current strength of the economy is largely due to the
boost from the massive fiscal stimulus at the start of this year. But we
always expected the impact on growth from the one-off step-up in household
incomes and post-tax corporate profits to fade in 2019. At the same time,
monetary policy is becoming a more significant headwind.”
Ben Casselman of the New York Times: “Companies
are investing more in intellectual property. But other than that, business
investment was anemic in Q3. Not much evidence of a big boost from the tax
law.”
Josh Bivens of the Economic Policy Institute: “Today’s
report provides some clear evidence about why this pick-up has occurred:
fiscal policy swung from steeply contractionary to expansionary. The
contribution to growth made by federal spending in the so far in 2018 has
been stronger than any other comparable period since 2010—when spending
from the Recovery Act was still at its peak. Those looking for policy
lessons from the economy’s growth pick-up in 2018 should focus
here—expansionary fiscal policy, particularly spending, works to boost the
economy.”
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Trump’s Middle-Class Tax
Cut Will Have to Wait
House Ways and Means Committee Chair Kevin Brady (R-TX) told
CNBC Friday that any action on President Trump’s somewhat mysterious
promise of a 10 percent tax cut for middle-class households will have to
wait until 2019 and will depend on the results of the midterm elections.
"We expect to advance this in the new session of Congress if
Republicans maintain control of the House and Senate," Brady said.
Referring to the development as a “plot twist,” Roll Call said Brady’s comments signal that
GOP lawmakers have no plans to take up Trump’s plan in the lame duck
session in November and December.
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Chart of the Day
Americans are spending more and more on out-of-pocket
healthcare costs. A report released this week by the JPMorgan Chase
Institute finds that annual growth in out-of-pocket spending has
accelerated since 2014, reaching 8.5 percent in 2017. That year,
“high-income families experienced the fastest growth in healthcare spending,
while low-income families experienced the highest growth in healthcare
spending burden.” Low-income households spent about 2.8 percent of their take-home
pay on health care, compared to just over 1 percent for the top-earning
fifth of families.
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Number of the Day: 16
Percent
Premiums for benchmark plans sold through Obamacare
exchanges may be set to fall next year, but they’ll still be about 16
percent higher than they would have been if not for some Trump
administration policies, according to a new Kaiser Family Foundation report. “Although 2019 premiums
for plans in the ACA marketplaces are flat or falling in many places, they
would be substantially lower still if not for several key policy and
legislative changes,” the report says. Premiums across all
Obamacare-compliant insurance plans will be an average of 6 percent higher
than they would have been “as a direct result of individual mandate repeal
and expansion of more loosely regulated plans.”
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Why Trump’s Medicare Plan
Won’t Cut Prices Anytime Soon
President Trump’s newly unveiled test plan to lower Medicare
Part B drug costs may have limited resonance in the days before the midterm
elections — and could face a difficult, if not impossible, road over the
longer-term as well, given resistance from the pharmaceutical industry and
doctors as well as some conservatives worried that the plan runs counter to
their free-market principles and some Democrats who say the plan doesn’t go
far enough.
“Although the effort put into addressing drug pricing by the
Trump administration is impressive, the solutions proposed Thursday face
insurmountable challenges,” Walid F. Gellad, director of the Center for
Pharmaceutical Policy and Prescribing at the University of Pittsburgh,
writes at STAT. “I worry that the plan will meet
the same (ruinous) fate as prior proposals to change how we pay for drugs
in Medicare Part B.”
The plan: The proposal calls for Medicare
to test benchmarking prices for certain drugs — those administered by
doctors or in hospital settings — against an index of prices from other
advanced countries like France and Germany. The administration is also
calling for more private sector negotiations between vendors and drugmakers
and payment changes that it says will cut incentives for doctors to
prescribe costlier drugs.
The immediate impact: The
announcement may be politically beneficial, sending voters a message just
before the midterm elections that the Trump administration recognizes their
concerns about drug prices and is taking action to bring them down. But the
upside is probably limited. “Early indications are that it won’t be an
immediate game changer — it’s too wonky for Republicans playing defense in
local races, it gave Democrats a fresh opportunity to slam the
administration‘s attacks on patient protections and it won’t help most
voters pay less for prescriptions at local pharmacies,” Politico’s Dan
Diamond writes, adding that “Trump’s
sweeping proposal mostly landed with a thud in Washington and on the
campaign trail. The handful of Republicans to release statements issued
mild remarks saying only they would take a look at it.”
The longer-term challenges: Trump’s
proposals don’t directly affect the cost of medications patients pick up
from pharmacies, and they won’t immediately reduce the price of those drugs
they do cover. Politico’s Sarah Karlin-Smith explains: “The demonstration
project, which likely couldn’t start until at least 2020 under the
government’s rulemaking process, would impact just half of the country,
though the administration hasn’t laid out where, and would take five years
to fully scale up and realize most of the projected savings.”
Even before that, the plan faces a host of obstacles. First,
there really isn’t a concrete plan yet — just a proposal that is already
raising plenty of questions. And the political opposition is likely to be
significant. The proposal is notable for its emphasis on price setting — an
approach that runs counter to traditional Republican ideology and that’s
already raising cries of “socialized” medicine. “This is setting
the rates based upon international standards," Gerard Anderson, a
health policy professor at Johns Hopkins University, told CNN. "It couldn't be
more anti-Republican."
The University of Pittsburgh’s Gellad adds that, “by taking
aim at revenue for physicians and pharmaceutical manufacturers, the
administration will cause doctors and industry to join at the hip to oppose
whatever might be proposed.”
The Trump administration also wants to use the Center for
Medicare & Medicaid Innovation, initiated under Obamacare, to run its
test, but Republican lawmakers and industry lobbyists successfully blocked
the Obama administration from using the same program to test a more modest
Medicare drug plan.
The bottom line: “The
Trump team will have to tackle political, legal and administrative
obstacles, all while keeping voters enthused about a wonky plan that’s
limited to one segment of the Medicare program. Any rewards likely won’t
materialize for years,” Politico’s Sarah Karlin-Smith says. For Americans eager to see the
prices of their prescriptions drop, Gellad offers some bad news: “This plan
is not structured to make any dent in affordability for patients any time
soon.” [Yuval Rosenberg
& Michael Rainey, TheFiscalTimes,
October 26, 2018]
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This AI Bot Fights Workplace Harassment
As
survivors and activists, the #MeToo movement is personal for us. That's why, a
year after #MeToo went viral, we're catching up with ACLU supporters like you
to make sure we keep giving this fight everything we've got.
Not
everyone knows that #MeToo began over a decade ago. It shouldn't be a
surprise: Sexual violence is chronic. It's
an epidemic. And it can strike anywhere – from Hollywood to your own
neighborhood.
Like
us, the ACLU has been on the front lines of the fight to end gender-based oppression.
Since the ACLU Women's Rights Project's launch in 1972, it has been
instrumental in knocking down laws that explicitly treat women differently from
men, and just this year it doubled down on its mission with a new 12-month
initiative to achieve gender justice. Under this administration, the threats
are large and liberation requires everyone to be engaged.
We
must remember that #MeToo is a movement that is for and by survivors. Our
movement is universal. It's urgent. And we're here to show the world that we
won't be silent and we won't be defined by our trauma.
Thanks
for listening,
Tarana Burke and Alyssa Milano
ACLU supporters and #MeToo activists
ACLU , October 25, 2018
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