The predictably regressive Trump tax cut was sold to the public as a vehicle to increase investment and productivity, with higher wages and a smaller deficit to follow. In terms of what was promised, it was a miserable failure. The deficit soared, but investment remained stagnant, except in dollar stores, share buybacks, and government securities. However, the individual tax cuts, when sprinkled on an economy that was already lively, caused a Keynesian boom that drove up wages, even for unskilled workers. It was totally unintended–a perversion of Abenomics, if you like–but in some ways, it worked, particularly since the Fed agreed to play along and keep interest rates low.
Biden bought into the part about running deficits in order to get the economy running hot, but he has changed the focus of the federal action from regressive tax cuts to spending programs directed at working people. So far, for the most part, it has been a success, but it is early days. What is the longer term prognosis for his program? I will discuss that in my next post.