President Trump went on a media tour boasting about the economic effects of his tax cut. If only the real data backed him up

REUTERS/Kevin Lamarque
According to the White House website, “The economy has come roaring back to life under President Trump.” This might be true on Bizarro World, but it’s not true here on Earth.

In 1960, DC Comics introduced Bizarro World, a planet where everything was the opposite of our world. Superman’s powers include, for example, heat vision and freeze breath while Bizarro Superman has freeze vision and flame breath. Bizarro versions of Lois Lane and Jimmy Olsen all live on Bizarro World, which is itself a cube instead of a sphere.

President Trump and his economic policy team inhabit a Bizarro World of upside down economic data and are trying to convince us to join them there. Let’s visit their inverted world and compare the happenings there with those on Earth.

This past week, the Trump Administration celebrated the six month anniversary of the Tax Cuts and Jobs Act of 2017. To honor this event, Fox Business anchor Maria Bartiromo interviewed a variety of Trump Administration officials responsible for economic policy, including President Trump himself and Larry Kudlow, director of the National Economic Council.

During the interviews, President Trump and Kudlow presented a number of assertions about the effects of the tax law on the US economy. I will focus on two of them: that the iron and steel industry is booming, and that the federal budget deficit is shrinking in part due to increases in tax revenues. We can check their contentions using data from FRED, the Federal Reserve Bank of St. Louis’s economic database.

Iron, steel and aluminum

President Trump addressed a topic important to Minnesota’s economy when he spoke with Fox’s Bartiromo. He said, “If you look at steel and aluminum, we practically built a new industry in a period of 4 or 5 months.” If this is true, these effects should show up in the data on the steel and aluminum industries.

The graph below shows data on raw steel production from the June 2009 (when the last recession officially ended) until the April 2018 (the last date for which the data are available.) I will use this same time scale for all of the graphs that follow.

Raw steel production, June 2009 to April 2018
line chart

Raw steel output definitely had been increasing but production actually fell from March to April, so the hyperbole about “a new industry” is not warranted. Overall, production continued to increase at about the same rate over the long term as it has since early 2016.

A new aluminum industry does not appear in the numbers either. The figure below shows aluminum production from June 2009 to May 2018:

Aluminum production, June 2009 to May 2018
line chart

Aluminum production bounced around the same level over the past two years, and I see no discernable break in the pattern since the tax cut was enacted.

Minnesota is not a big steel or aluminum manufacturer but is a large producer of iron ore. Perhaps the new industry appears in those data? No, it does not. First, let’s look at national iron ore production from June 2009 to April 2018:

Iron mining output, June 2009 to February 2018
line chart

Production fell dramatically in early 2015 and gradually recovered over the past three years, reaching its 2012 level over the past few months. There’s been no dramatic recovery in mining output, just a slow trend upward since 2015 with frequent fluctuations up and down.

Furthermore, mining employment has not changed dramatically since the December’s tax cut. Here are the figures for mining and logging employment in Minnesota (FRED does not separate out mining and logging separately, but mining is consistently eighty percent of this number):

Mining and logging employment, June 2009 to February 2018
line chart

Mining and logging employment have remained at about 6,500 workers since in October 2016. There’s been no discernable effect on mining employment caused by the tax bill.

Tax revenue and budget deficits

According to Mr. Kudlow, the American economy is “throwing off enormous amounts of new tax revenue.” Further, “the deficit…is coming down, and it’s coming down rapidly.” This would be good news if either of these statements were true, but the data support neither of them.

Federal government tax receipts, 3rd quarter 2009 to 1st quarter 2018
line chart with upward trend

First, tax revenues were rising before the tax law passed in December, but at a slower rate than the period 2009 to 2016, and tax receipts fell during the first quarter of 2018. Altogether, tax receipts are roughly where they were in 2014 and no additional revenue is flowing into the Treasury.

Second, deficits could be falling if spending decreases at a faster rate than tax revenues. That isn’t what the data show:

Federal government expenditures, 3rd quarter 2009 to 1st quarter 2018
line chart with upward trend

Spending fell in the first quarter of 2017 but then resumed its previous trend for the rest of 2017 and into 2018.

Third, given that tax revenues are falling and spending is rising, the federal budget deficit continues to grow. Here is the most optimistic reading on the data:

Federal deficit (percent of GDP), 2009 to 2017
line chart

This graph takes the federal budget deficit and compares it to GDP on an annual basis from 2009 to 2017. The deficit was almost ten percent of GDP in 2009 and fell to about 2.5 percent of GDP in 2015. It’s been growing since then and reached 3.4 percent of GDP in 2017. In other words, the deficit is not coming down, either slowly or rapidly, it is expanding.

Living on Earth

According to the White House website, “The economy has come roaring back to life under President Trump.” This might be true on Bizarro World, but it’s not true here on Earth. The economy as a whole, along with sectors such as iron and steel, continue to grow at the same rates they did before the Tax Cuts and Jobs Act of 2017. Budget deficits continue to grow driven by increasing military spending and falling tax revenues. This is the opposite of what President Trump and his advisors are telling us.

It is too early to evaluate the long-run economic effects of December’s tax and spending changes. It may be that they will have the effects on growth, industries, and budget deficits that their backers assert. However, if we are going to debate potential policies and evaluate recently enacted plans we cannot travel to Bizarro World for our statistics. Rather, we must stick to the data available here on Earth. While it’s understandable that our leaders want to promote their policies, it’s important that they not present inaccurate data and hyperbolic claims.

Comments (19)

  1. Submitted by Tom Christensen on 07/03/2018 - 11:07 am.

    Trump’s Bizzaro World

    Businesses are hiring, and some are now handing out less beneficial bonuses rather than the more beneficial pay raises. Bonuses have a positive effect of about 30 days while pay raises have a long-term benefit. Trump says, “Trade wars are easy to win”, but it doesn’t seem like a good idea. Pushing our allies away and letting dictators play Trump like a fool doesn’t appear to be a good idea. The coarseness of our language, lack of civility, racism, bigotry, misogyny, disrespect, distrust of our institutions and media, demonstrable lies, and Bizzaro World Tweet storms don’t seem like good ideas. Trump never defines any meaningful goals because then he would have something to be measured against. Trump likes the very low bar of accomplishment based on no one knowing what he is doing. Separating children from their parents with no system in place to reunite them doesn’t seem like a good idea. So called deficit hawks growing the national deficit to 10 trillion dollars doesn’t seem like a good idea. Whatever Trump has or will accomplish, if anything with lasting positive effects, I won’t be the judge of that and neither will Trump. Historians will have the final say.

    Republicans have been cultivating these behaviors for decades to feed conservatism. In the end, historians will determine if Trump exited as a hero or an ill-prepared president. The legal system will determine if Trump left office as law abiding or as a criminal.

    Do elections have consequences? I can answer that one – YES, THEY DO!

  2. Submitted by Pat Berg on 07/03/2018 - 11:20 am.

    Past is prologue

    “it’s important that they not present inaccurate data and hyperbolic claims.”

    Why would they stop now? It’s been working beautifully for them so far . . . . . . . .

  3. Submitted by David Markle on 07/03/2018 - 11:24 am.

    Visible effects

    Just wait until the consequences of Trump’s trade policies become obvious.

    • Submitted by Frank Phelan on 07/03/2018 - 11:54 am.

      Hold Your Horses

      On what basis would one think that statistical data will change voters’ minds?

      When anything does not go Don Trump’s way, he always has a ready bogey man to blame, “You lost your job to that immigrant guy over there! let’s build a wall! Look! That public employee has a pension! it’s his fault!” The list is endless.

  4. Submitted by Connie Sullivan on 07/03/2018 - 12:06 pm.

    Great to have you back, Professor Johnston! Keeping our feet on the factual ground and Trump’s feet to the fire, with clarity. Thanks.

  5. Submitted by Don Berryman on 07/03/2018 - 12:07 pm.

    I assume the growing federal deficit is planned

    I assume this is planned so they can point at they growing federal deficit and use it as the excuse to push major cuts to education, Medicade, Medicare, Social Security, etc. making the common folk, the poor, and vulnerable pay for Billionaires’ windfall.

  6. Submitted by Jim Bernstein on 07/03/2018 - 01:41 pm.

    Does It Matter?

    The tragedy, I fear, is that none of this matters to most of Mr. Trump’s devotees. Professor Johnston’s insights and clear analysis will be dismissed because they contradict the Trump narrative.

    Just this past Saturday at an event, I was assured by a long time acquaintance that I was being “foolish if you believe what the (expletive deleted) media says” and that I needed to “trust what our President is saying . . . he tells it like it is, the media just tell lies”. It was evident that my acquaintance is entirely persuaded that his perspective is true and shared by many in the Trump orbit.

  7. Submitted by Neal Rovick on 07/03/2018 - 02:47 pm.

    ….The tax cuts have added on average $17 a month to people’s incomes, according to an analysis by Ernie Tedeschi, head of fiscal policy analysis at the investment firm Evercore ISI and a former Treasury Department economist. The analysis is based off consumer spending, income and inflation data released Friday….

    https://www.pbs.org/newshour/politics/ap-fact-check-trumps-tax-miracle-immigration-claims

    So, what will remain of that $17.00 when gas costs go up due to the destruction of the Iran nuclear deal. And what about the prices that are being hiked because of tariffs ?

    By the way, you may think that it was only imported steel and aluminum with price hikes from tariffs. But no, ALL steel and aluminum increased–the American producers have increased their prices to be near the price of the tariffed steel and aluminum and have a windfall profit from this.

    But don’t look for any meaningful increase in steel or aluminum capacity in the US–new mills take billions of dollars of investment and a decade or so to complete. What would they do if Trump changes his mind again in a week, or a month, or a year ?

    Oh, speaking of domestic investment–most of the cash brought back into the US has gone for buying back their own stock as opposed to investing in new production. The tariffs also have the effect of making US companies aware of the idea that manufacturing outside of the country allows them to access markets outside the US without pesky tariff games(right, Harley-Davidson).

  8. Submitted by Neal Rovick on 07/03/2018 - 03:12 pm.

    The biggest negative of Trump’s economic “policies” is uncertainty. There is uncertainty as to the final effects of the corporate tax reform, business by business. The on-and-off-and-on escalating tariffs adds uncertainty to business decisions and profitability. In the end, it is a real negative for economic growth because big investments on the conditions today, may not be the conditions when the new production comes on line. The big companies do not just rely on the US consumer–they rely on a world market and if the “Made in America” sticker is compromised by politics or reciprocal tariffs, that sticker will be changed. Look for a slowdown in investment due to these erratic moves.

  9. Submitted by joe smith on 07/06/2018 - 05:30 pm.

    Today’s job report of 213,000 jobs mostly in the blue

    collar sectors of manufacturing, transportation, distribution and growth of durable goods is a great thing for regular Americans. Can’t understand why everybody is not happy over more folks working. I guess if you hate Present Trump, you must hate blue collar regular working folk having a better life. Dont get that logic at all.
    If President Obama’s signature piece of legislation (Obamacare) had actually allowed families to save $2,500, keep your doctor and keep your healthcare plan, it would be impossible to call that a failure. Trump lowering the tax burden on individuals and companies along with cutt8ng regulations stimulated the economy and jobs followed. “Cash for Clunkers “ didn’t quite have the same effect.

    • Submitted by Edward Blaise on 07/08/2018 - 11:00 pm.

      There you go again…

      Set up the old straw man:

      “Can’t understand why everybody is not happy over more folks working.”

      And then knock it down by asserting all the D’s are somehow sad.

      I have not head anyone complain about good job months. Trump has done
      a fine job of not screwing up the Obama economy: slope is slope, down at the end of GWB and a continuous rise through the Obama years and into Trump. Of course, Trump is leading us down the road of record deficits, a tax cut that did not put the majority of the money into the middle class who would spend it: boosting the economy, not backing science and technology as the key to our better energy future, kissing up to every rogue dictator while talking smack to our historic allies, owning the highest staff turnover rate in Presidential history and offering 7 lies for every truthful statement made. All being a few reasons why I am not dancing in the streets at a decent job creation month…

      But all that aside, I would really appreciate if you could just answer one question:

      “If you son was caught in a lie, you corrected him on it, proving it was a falsehood and he repeated the same lie again, you would react with:”

      A. Pretending it’s not happening.
      B. I really like that lie too, keep it up.
      C. A bar soap sandwich, washing out his mouth.

      Why is Presidential lying OK????

  10. Submitted by Steve Rose on 07/08/2018 - 03:20 pm.

    Why Not Looking Past Q1 of 2018?

    Because it does not fit your Bizarro World narrative?

    “Government revenue rose by 12%, or $55 billion, in April (2018) from the same period a year earlier, the Treasury Department said Thursday. That brought April’s surplus to $214.3 billion, the largest April surplus on record.”

    https://www.wsj.com/articles/treasury-federal-budget-surplus-for-april-largest-on-record-driven-by-tax-deposits-1525976157

    • Submitted by Edward Blaise on 07/09/2018 - 10:03 am.

      An easy answer…

      From the first line of your linked article:

      “WASHINGTON—The U.S. government posted the highest surplus on record in April, although the federal deficit over the past several months widened as spending rose along with revenues.”

      Hmmm…

      The revenues/surpluses you speak of would be known as “taxes”
      The deficits we are experiencing would be known as “spending”

      Which of course makes R’s:

      The party of tax and spending: Please own it.

      Bizzaro World is one that has:

      R’s opposing free trade.
      R’s giving record deficits a free pass.
      R’s spending like drunken sailors with no plans on how to pay for it.
      R’s with conservative christian values green lighting paying off strippers.
      R’s who during the Clinton era walked around with “Character Counts” buttons on their lapels, now having no recollection what so ever about character having any role in Presidential qualification…

      • Submitted by Steve Rose on 07/09/2018 - 11:20 am.

        Read on

        If you read beyond the first two sentences, you are told why spending is rising – it is due to the aging population. There is a large population of baby boomers, who have aged under this President as the same rate as they aged under the last President.

        Fair trade is better than free trade as is repatriating American jobs. 2018 is the first year in American history in which there are more jobs than unemployed people. Work place participation is on the rise, as older Americans who had given up on working are now re-entering the job market.

        Character. If you called for Bill Clinton’s resignation after his Oval Office affair with an intern (subordinate employee) came to light, you may have the moral high ground to make your criticisms.

        • Submitted by RB Holbrook on 07/09/2018 - 05:32 pm.

          I Read On

          “If you read beyond the first two sentences, you are told why spending is rising – it is due to the aging population.” That’s correct, but it doesn’t even come near to rebutting the point that spending is rising.

          “Fair trade is better than free trade as is repatriating American jobs.” Since the US dollar is the world’s reserve currency, is a trade deficit necessarily a bad thing?

          “Character.” Give me a break. If you’re going to answer every criticism of Trump’s character with “I’ll bet you didn’t say that about the Clintons,” you should not be using the word character. If you’re going to ignore/defend’deflect about Trump, you should not come within a mile of a moral high horse.

          PS I don’t care what you might really think, and that you disapprove of what Trump does but you’re just calling out the hypocrisy. That is an old, tired right-wing trope that isn’t even laughable anymore.

  11. Submitted by Edward Blaise on 07/09/2018 - 04:14 pm.

    Shhesh…

    Some days it is not easy to be snark free enough for Minn Post censors. I’ll try again:

    1. Spending due to the costs of baby boomers drawing down on their SS and Medicare benefits has been well known to all for decades.

    2. If one were to make the most comprehensive rewrite of our tax code in 40 years, one would think these added expenses would be factored in and not just ignored as added debt.

    3. For every domestic fair trade winner there is a domestic fair trade loser: let’s hope you do not build things in the USA with targeted china content.

    4. Why is it that almost every government produced labor stat was ridiculed by Trump during the 2016 campaign as being made up and is now the documented proof of his success. Were you lying to me then or lying to me now?

    5. I would never try to assume the moral high ground claimed by the Christian Right. I was simply observing that those “Character Counts” pins should be bigger and with LED lights on them now.

    Whoops, those LED lights are going thru the roof in price due to new tariffs on them…

    • Submitted by Steve Rose on 07/09/2018 - 04:41 pm.

      Really, LEDs?

      Maybe you should have chosen something not made in the USA. There are a lot of LEDs made in America and it is a growing manufacturing sector.

      http://envirolux.net/leds-made-in-the-usa/

      Why would the “Character Counts” be bigger? Because of the President’s alleged misdeeds before he was President’s election are somehow greater with respect to Bill Clinton’s proven misdeeds during his presidency?

      There is a continuous trade war occurring. This idea that there was no trade wars in the global market before President Trump is preposterous.

      • Submitted by Edward Blaise on 07/09/2018 - 11:49 pm.

        There you go again…

        From the first paragraph of your link:

        “As the only US-based manufacturer, we actually build our top-rated LED systems right here at home.”

        I guess growing is going up from one in your view?

        Unless you are a fan of the Ax Man and / or nostalgic for Radio Shack, LEDs are not much consumed as single light emitting diodes. I have 12 in my new toaster, hundreds on my made in Indiana snowmobile trailer. They are almost always a component in a much greater priced assembly / final product. These products are very often made in the good old USA by American workers. Trump is making their products less competitive in the market.

        Trump has only the vaguest of ideas of what his actual goals are for his multi front trade wars. He loves telling us: “trade wars are easy to win”. Well show us. And maybe start with that wall that Mexico is going to pay for.

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