….Minister for Finance Mathias Cormann’s statement that corporate tax cuts in the US had “led to stronger investment, stronger growth, lower unemployment rate and higher wages” is not supported by evidence.
Cormann pointed to US economic data from the second quarter of 2018 (shortly after the US corporate tax cuts were enacted) to support his statement.
Cormann correctly quoted the figures about GDP growth and the unemployment rate. His statement on wage growth is debatable, and there are qualifications to be made about his interpretation of the capital investment data.
But the simple observation that some US economic indicators improved in the second quarter of 2018 does not imply that those improvements were caused by the tax cuts.
Even if causation could be established, one quarter of data tells us very little about the effect of tax reform. It takes time for companies and workers to adjust to changed taxation environments. These adjustments happen progressively over time, and this can lead to significant differences in the short term and long term responses.
It’s worth noting that the improvement in economic conditions in the US started in mid-2016, around 18 months before the tax reform…..