Business investment boom from Trump tax cuts ?

The Trump corporate profits tax rate cut 

was supposed to unleash 

lots of new business investment. 

Increased business investment 

would boost real GDP growth.

But, corporate profits after tax 

were already high 

BEFORE the Trump tax cut (see A).

Yet real business fixed investment 

(structures, equipment and 

intellectual property products), 

as a percentage of 

after-tax corporate profits, 

WAS NOT exceptionally high (see B).

It is not clear that 
increased corporate profits, 

from lower taxes, 
will result in a big increase 

in business investment.

So far we have seen 
lots of stock buybacks, 

high executive bonuses, 
and one-time 

$1,000 bonuses 
for some other employees.

Record earnings and low
corporate borrowing 
interest rates before
the Trump tax cuts
had not boosted 
net domestic investment 
beyond half of
its historical norm.

Prior tax windfalls 
(e.g. the 2004 repatriation holiday) 
were almost entirely expended 
on dividends and stock buybacks.

There's little reason to expect 
any durable surge 
in capital spending. 

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Footnotes:

(A)

2016 after-tax corporate profits 

were 6.9% of GDP, 

vs. a median value of 5.5%. 

After-tax corporate profits 

from domestic operations, 

as a percent of nominal GDP, 

peaked in 2012 at 7.6%. 

(B)

2016 real business fixed investment 

was 191.5% of real after-tax corporate profits, 

vs. a median of 174.5%.

The record high was 

323.7% of profits in 2000,

and there was a near-record high of 

300.7% in 2008.