Trump promised tax cuts would bring back jobs, but GM workers in Ohio feel betrayed.

Introduction

Mar. 22, 1:15 p.m.: This story has been updated.

LORDSTOWN, Ohio – 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 6. 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. The local newspaper dubbed GM’s November announcement, “the New Black Monday,” a reference to the steel mill closures and the economic devastation that hit the region more than 40 years ago. 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 Trump’s promises have not come true for workers here in northeastern Ohio. In fact, the results, so far, have been the opposite of Trump’s predictions. 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 Nese’s Country Café, a local favorite that serves hot homemade biscuits and plays 80s rock and roll hits in the background.

The closure has made the Trump tax law look ineffective, and so it’s now become a battleground in a political fight, not just a corporate cost-cutting and repositioning move. Trump lashed out immediately after the Lordstown plant shutdown last year, demanding the company reopen the plant by building another vehicle there, and threatening to take away GM’s subsidies. This week, Trump, sensing the bad political optics, brought the subject up again, saying he talked with GM Chief Executive Mary Barra, “I asked her to sell it or do something quickly,” Trump tweeted. Speaking at a manufacturing center in Lima, Ohio, on Wednesday, Trump upped his criticism: “And what’s going on with General Motors? Get that plant open or sell it to somebody and they’ll open it… Get it going now and the UAW will help you.”

But Trump’s threats and pledges 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 both 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 to 2.1 percent for 2019. In its January report, the Congressional Budget Office, the non-partisan legislative agency, estimated this year’s GDP would grow by 2.3 percent, the same rate as the year before the tax cuts took effect. And after this year, “annual economic growth is projected to slow further – to an average of 1.7 percent through 2023,” CBO reported. The Trump administration is sticking with a rosier economic outlook of 3.2 percent growth. Meantime, the tax cut is projected to raise the federal deficit to $900 billion this year, and exceed $1 trillion starting 2022, according to the CBO.   

“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. In its annual report to Congress released this week, Trump’s Council of Economic Advisers lauded the growth in business investment over the last two years, while acknowledging that overall economic growth will slow toward the end of the decade, below the 3 percent average rate promised by the president.

The growth in business investment hasn’t impressed some economists. “If you thought the tax law was a game changer, you’d see much stronger investment growth,” said Mark Zandi, chief economist with Moody’s Analytics. There is “no evidence suggesting the tax cut has provided sustained increase in business investment.”

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.

February may have begun to indicate a slowdown. Manufacturing added only 4,000 jobs after a year in which manufacturing averaged 20,000 new jobs a month, the highest in nearly two decades. But manufacturing remains far below its peak in the 1970s when more than 19 million were employed in factories, driving America’s economy. Today, about 12.8 million are employed in manufacturing while health care and service sectors fuel the country’s economic growth.

For Ohio, which had the country’s third-largest manufacturing workforce with 705,000 jobs as of December, growth in these blue-collar jobs has been conspicuously absent. For the state, the sector grew only 1.4 percent in 2018 compared with the nationwide average of 2.2 percent. Moreover, Ohio is struggling with one of the worst unemployment rates in the country — 4.7 percent in January, ranking it seventh from the bottom for all 50 states. The situation is more dire in the Mahoning Valley surrounding GM’s Lordstown plant; December seasonally adjusted unemployment increased to 6.0 percent from the prior year. The rate is expected to climb even higher with the plant closure and layoffs at GM suppliers. The area will lose $3 billion in economic activity this year, according to a new study by Cleveland State University’s Center for Economic Development.

‘A kick to the gut’

On March 6, GM workers assembled 350 vehicles at the Lordstown plant — including what could be the last one: a white compact Cruze. (GM has left open the possibility that the plant could be used to build another vehicle.) They draped an American flag over the front hood and took a few photos to commemorate the event. Recent retirees and the newly unemployed held a vigil on Ellsworth Bailey Road, a worn two-lane route in the shadow of a Cruze painted on the plant’s wall, easily visible to visitors as they approach the plant. The 6.2-million-square-foot facility stretches across a flat, barren section of Lordstown, where for 53 years workers have assembled more than 16 million vehicles, from Chevy vans and Firebirds to the Cobalt brand. The plant made national headlines in the 1970s for its labor strike.  Later labor-management disputes elsewhere would be referred to as “the Lordstown syndrome,” even years later when the Lordstown plant’s workforce became a model for management-union relations.

The plant’s idling ended the jobs of 1,628 workers, according to GM filings with Ohio, after two previous rounds of cuts. The first occurred two days after Trump’s inauguration in January 2017 — when GM gave upbeat sales figures on the Chevrolet Cruze. A month later, in February 2017, Consumer Reports named the Cruze “compact car of the year.”    

In June 2018, as Cruze sales started to fall, GM shed a second shift, affecting roughly 1,500 workers. Then another blow came: That same month, six months into Trump’s tax law, GM confirmed plans to build a new Chevy Blazer in Ramos Arizpe, Mexico, where it also built a Cruze hatchback. A GM spokesman said GM bases production decisions, like the Blazer, on plants’ projected availability.

“It was a double kick to the gut,” said Tim O’Hara, who retired at age 59 during last summer’s layoffs after 41 years at the plant.

The layoffs, amid big business tax breaks, have drawn the very public and unusual bipartisan ire of Trump and elected officials, including Ohio’s two U.S. senators, Democrat Sherrod Brown and Republican Rob Portman, as well as Ohio’s Democrat Rep. Tim Ryan, who represents the Youngstown-Lordstown area. Ryan called for a congressional hearing into GM: “The American people deserve to know if the tax cuts they paid for are being used to inflate corporate profits at the expense of their economic security and the survival of American workers.” A hearing has not yet been scheduled.

The criticism had been growing since spring 2018. After GM announced it would cut a second shift, Brown questioned the layoffs in a lengthy letter to CEO Barro, pointing out the new tax cut “amounts to billions of savings for a company that already had an ‘all-time record” of revenues.”

He wrote, “it’s hard to understand why the company would decide to lay off more than 1,500 workers at its Cruze plant in Lordstown.”   

But GM appears undeterred by the political pressure. The corporation is enjoying a bevy of tax benefits, including $8.6 billion in U.S. tax credits partly carried over from losses prior to its 2009 bankruptcy when it was bailed out by U.S. taxpayers during the financial crisis. It also has state tax credits, and under the first year of the new tax law GM reported an extra $104 million rebate in 2018. Since 2010, the first full year since coming out of bankruptcy, GM has reported $33 billion in income before taxes — including some years they didn’t pay any taxes. GM booked $18.4 billion in net tax benefits, according to its annual filings with the Securities and Exchange Commission.

Meanwhile, GM is buying back stock, a lot of it — the GM board of directors has authorized the company to buyback $14 billion. The purchases are intended to lift the firm’s stock price, a boon to shareholders. (U.S. corporations plowed a record $770 billion into stock buybacks in 2018 with their tax windfalls, according to Goldman Sachs, which estimates corporations will spend another $1 trillion on buybacks this year.)

GM’s future plans fly in the face of Trump’s promises that the tax law will create more investment and bring jobs back to the United States. The company said it seeks to save $6 billion by 2020 through its restructuring, which includes reducing investments by $1.5 billion and with U.S. layoffs affecting as many as 7,950 salaried positions and 2,800 hourly workers, according to GM and data the Center for Public Integrity analyzed. In the United States, GM has increased its salaried payroll by 47 percent to 53,000 since 2013, while reducing its hourly employees to 50,000, according to company annual reports.  GM has cut 5,000 U.S. hourly workers in the last two years but added 3,000 jobs in Mexico and Canada.

A company spokeswoman, in an email, said GM has invested $22 billion in U.S. manufacturing since coming out of bankruptcy. The November announcement is “a continuation of a [March 2015] strategy to transform our business to meet changing consumer preferences and lead the future of mobility,” the spokeswoman said, adding that the reduction in business investment is a “return to a normal run rate,” following increased investment over the last few years when GM “refreshed” crossovers and trucks, as well as new models for China and South America, the spokeswoman said.

Matt Gardner, a senior fellow with the Institute for Taxation and Economic Policy, a nonpartisan, liberal think tank, said GM’s announcement confirmed economists’ arguments regarding the tax cuts.

“Corporations will always base their investment and job-creation decisions on market fundamentals and consumer demand, not on incremental tax giveaways,” Gardner wrote on his blog. “No amount of tax cuts could change this calculus for GM.”

Uncertain Future

With uncertain futures, employees are leaving their homes for openings at other plants nationwide. So far, 417 of the 1,193 currently affected hourly Lordstown employees are moving for jobs elsewhere, according to GM spokesman Dan Flores. “We are legitimately trying to minimize the impact on our workers,” Flores said. Flores notes GM has invested $1 billion since November 2016 in its four other Ohio facilities, employing about 4,000 workers.

The retired O’Hara, who’s a local union leader, said GM’s employee numbers do not account for the more than 3,000 positions previously eliminated at the plant in 2017 and 2018. O’Hara said many workers are not in a position to move for a job, and they can’t afford to retire. The Youngstown native said he’s lived through many industry cycles since joining GM right out of high school in 1977.

“Bad news is around the corner, but you don’t live your life that way,” said O’Hara, who spends his day assisting former co-workers.

The Lordstown plant is part of a bigger GM strategic puzzle that automotive analysts say will play out in the coming months. A number of factors are at work, from UAW negotiations and potential automobile tariffs to politics and industry economics. The national UAW contract is up for negotiations in September, and one critical item that will be subject to negotiation is whether GM will retool one of the now “idling” plants to manufacture a new vehicle.

The impact of the GM closures is just starting to sting. (Every GM job creates 8.6 indirect supplier jobs, making everything from car seats to glass, according to a 2015 Center for Automotive Research report.)  Since the Thanksgiving news, local Lordstown suppliers like seat manufacturer Lordstown Seating, and janitorial services Leadec have started to file layoff notices; Comprehensive’s assembly line employees have begun applying for unemployment.

“It started out so well, so promising,” said former Comprehensive worker Conne. “We were the number one selling car.”