Factory workers at GM see layoffs, not benefits, after tax cuts
In the short run, the tax law coupled with federal spending acted as a stimulus, a “sugar rush,” but there are indicators the economy may slow this year.
Cheryl Jonesco had a plum job installing backup cameras in the Chevrolet Cruze compact car at the storied General Motors plant here. Her work on the assembly line for the last decade provided the financial means to buy a home while raising her now-teenage daughter.
But now, at 40, Jonesco’s life has been upended. On the Monday after Thanksgiving, GM announced it was ending current production at the plant here and at four others in the United States and Canada, largely because of changing customer tastes, which now favor SUVs over compacts. GM idled the plant March 8. Meanwhile Jonesco and hundreds of co-workers have essentially been forced to move south to fill GM openings in Spring Hill, Tennessee — leaving behind their families and homes. For Jonesco, that meant saying good-bye to her daughter, Marisa, who stayed behind with her grandparents to finish high school.
The shutdown has ripple effects that are stretching as far as the White House, but the most profound impact is in the struggling Mahoning Valley in northeast Ohio. At a nearby GM supplier, Comprehensive Logistics, workers learned just days before Christmas that their jobs also would end. One longtime employee, George Conne, said he worried about paying for his teenage daughter’s college education. He already worked a second job as a basketball referee. “This isn’t your rich city that’s been blessed,” said the 50-year-old Conne, who put together 450 struts a day for the Chevrolet Cruze’s suspension system.
This wasn’t supposed to happen, especially here. And especially now, in the wake of President Donald Trump’s 2017 Tax Cuts and Jobs Act, one of the largest tax-cut laws ever. The legislation cut the corporate tax rate to 21 percent from 35 percent, handing businesses a $1.35 trillion windfall over 10 years. The law gave tens of billions of dollars more in breaks on business investments and foreign profits, too. The Trump administration sold the huge rate cuts, the driving force behind the tax law, as the way to bring back American jobs and keep companies from moving overseas.
This area has long been a backdrop for photo opportunities illustrating industrial heartland economic woes. It was less than two years ago that Trump showed up in nearby Youngstown and decried the jobs lost overseas. He famously urged a large crowd: “Don’t move. Don’t sell your house. … We’re going to get those jobs coming back.” Those were welcomed words at the rally, where manufacturing jobs had been disappearing for decades — and still are.
But that’s not how it worked out for workers here in northeastern Ohio. In fact, the results, so far, have been the opposite of Trump’s promises. GM has shed roughly 3,000 hourly and salaried jobs in the area since the tax cuts.
“General Motors got this big tax break, and they are taking the jobs away here,” Jonesco lamented during an interview at a local hangout, Nese’s Country Café.
The pending closure has become a political fight, not just a corporate cost-cutting and repositioning move. This week, Trump, sensing the bad political optics of a tax law not bringing back jobs like he promised, went after GM leadership and its local union leader. He said he talked with GM Chief Executive Mary Barra. “I asked her to sell it or do something quickly,” tweeted Trump, who has made GM an ongoing target.
But Trump’s threats and promises about bringing back jobs to the area could be an empty one, as the tax law’s impact on the economy, as limited as it has been, may be coming to an end, economists say.
“THE SUGAR-RUSH IS BRIEF”
In the short run, the tax law coupled with federal spending acted as a stimulus, a “sugar rush,” economists say, that helped boost annual economic growth to 2.9 percent last year from 2.3 percent in 2017. After the release of the economic data, Trump was jubilant: “We have accomplished an economic turnaround of historic proportions.”
But multiple indicators show the economy is likely to slow this year, and in subsequent years, as the stimulus from the tax cuts fade, many economists say. This week, the Federal Reserve cut its projection for GDP growth this year to 2.1 percent. In its January report, the Congressional Budget Office, the non-partisan legislative agency, estimated 2019 GDP would grow by 2.3 percent, the same rate as the year before the tax cuts took effect. The Trump administration is sticking with a rosier economic outlook of 3.2 percent growth.
“For now, though, the slowdown in growth will serve as a reminder of the principle that big tax cuts can buy growth in the short-term, but that the sugar-rush is brief,” said Ian Shepherdson, of Pantheon Macroeconomics.
A key provision of the tax overhaul gave corporations a hefty break for investments in factories, equipment and intellectual property, which will save corporations more than $119 billion before it sunsets in 2026, according to a congressional estimate. In theory, business investments in factories and equipment should lead to more jobs, creating a tighter labor market. In turn, wages would increase for a sustained period of years to compensate for decades of stagnation.
Since the corporate tax cut, growth in business investment has bounced around quarter to quarter, from a robust high of 11.5 percent in the first quarter of 2018 to a weak low of 2.5 percent in the third quarter. Business investment, however, is expected to “slow markedly after 2018,” according to CBO.
The growth in business investment hasn’t impressed some economists. There is “no evidence suggesting the tax cut has provided sustained increase in business investment,” said Mark Zandi, chief economist with Moody’s Analytics.
Others have a slightly different take. While politicians may have oversold the tax cuts’ immediate impact, longtime industrial financial analyst Scott Davis said major manufacturing companies are weighing investments now that will kick in over the next three to four years. “Companies don’t make new factory decisions in six months period of time,” said Davis, co-founder of the independent research firm Melius Research.
Davis credits the lower corporate tax rate with making U.S. companies’ more competitive globally and slowing the flow of manufacturing jobs overseas. Still, Davis cautioned that increased automation across manufacturing reduces the need for labor. “We’re not going to add nearly as many jobs as you would have historically,” he said.