On his weekly visits to voters, U.S. Sen. Patrick Toomey (R., Pa.), has been doing a kind of victory dance in light of Congress passing and President Trump signing the tax cuts Toomey has long advocated.
Friday morning at M&S Centerless Grinding, a Hatboro precision machine shop that employs 40 at its plant there and a second works in Warminster, Toomey questioned whether lower taxes will really slice federal revenues by the $1 trillion predicted by Congress’ own Joint Committee on Taxation. He said lower income for Uncle Sam doesn’t necessarily mean higher borrowing costs, or medical or military spending cuts.
“Tax reform is going to enable businesses to make more investments and hire more workers.” Toomey said, after M&S owner John Shegda told of his plans to train and hire three additional machinists, thanks to the tax cut. Shegda was already planning to hire seven this year; now he figures he can afford ten.
“The only possible way it can increase the deficit by a trillion is if we get no extra economic growth. I have no doubt in my mind that we’re going to get that growth,” Toomey insisted.
Will it be enough? Patrick Harker, president of the Federal Reserve Bank of Philadelphia, doesn’t think so.
The tax cut “will not have a large impact” on the economy, the dual-Ph.D. engineer/economist told members of the American Economic Association at its yearly meeting at the University of Pennsylvania on Monday.
Harker admitted that he and many of his colleagues are puzzled by the way wages haven’t risen a lot and prices have gone up even less, even as unemployment has fallen toward historic lows.
“We are struggling intellectually” to make sense of how low unemployment hasn’t translated to much higher pay rates or high retail prices, he said.
Harker suggested that the Fed should think about doing fewer than an expected three or four small rate increases this year because long-term bond rates haven’t been rising in response to last year’s increases, another sign that the economy isn’t acting like the Fed’s models predict.
Whose problem is that, really? “At the holiday parties around our house, I talk to my neighbors and explain we have low unemployment and also low inflation. And they say, ‘Yah, what’s wrong?'” Harker said, laughing. Maybe the Fed should relax, he added. Let prices go up more than the current target of 2 percent a year.
Maybe wages will rise more, too. But bosses are still telling Harker they’d rather reward labor with “non-pecuniary measures: flex time. Working from home.” A former corporate director, Harker knows nobody raises wages until they have to — especially if competing companies aren’t boosting theirs and the government isn’t forcing the minimum wage higher.
Harker is hopeful that more of what the government used to call “discouraged workers,” older people who no longer have jobs, will get back into the labor force — and that more young people will pick well-paid skilled jobs over uncertain, expensive college courses that might not lead to a better-paid position.
Shegda told Toomey he is already seeing signs of that. While the back-office financial and drug-company jobs that used to employ a lot of young Montgomery County college grads have dried up, “there has been an increase in the number of young people” taking jobs on his factory floor or other area machine shops for about $15 an hour, plus medical, with an eye to working their way to as much as $100,000 a year, plus overtime, as a skilled supervisor.
“Our constraint is finding people,” Shegda said. “Getting experience takes two or three years.” At a growing firm like his, “that’s what the tax law will help us with. A 10-point reduction in our [effective income tax rate]: That’s money we don’t pay to the IRS; now we can make some more investments in our people.”