Economy: President Donald Trump signed his tax cuts into law one year ago. That means we’re going to hear a lot about how they fueled massive deficits and failed to boost economic growth. Neither are true, but that won’t stop [some folks] and the press from repeating these falsehoods ad nauseam.
To hear critics put it, the reforms to the individual income taxes — which lowered rates and expanded the standard deduction — and the much-needed cuts to the corporate income tax rate, were a bust. They didn’t help families. Didn’t boost corporate investment. They failed to turbocharge the economy. All they did was benefit the rich and explode the deficit. You don’t have to look very hard to see that the tax cuts did, indeed, boost GDP growth and incomes.
Early last year, for example, the Congressional Budget Office’s (CBO) pre-tax-cut forecast had 2018 growth at just 2% and the unemployment rate at 4.4%. GDP growth is well ahead of that pace, and the unemployment rate is just 3.7%. Contrary to some political claims, workers are clearly sharing in the tax-cut windfall. Not just through tax-cut bonuses and lower withholdings, but through increased opportunities and wage growth.
As we noted previously, blue collar workers are now in short supply, “reversing a decades-long trend in theU.S.” Average hourly wages are rising at 3.1%, the fastest rate since 1999. Unemployment rates are at lows not seen since 1969, and for minority groups, they’re lower than any time on record. Median household income is at all-time highs. None of this is a continuation of the Obama economy, which had flat-lined the year before Trump took office. Growth was so sluggish that conventional wisdom was theU.S.economy was destined for slow growth in perpetuity. But even if Trump’s tax cuts did boost the economy, surely critics are right that they are driving the deficit into the stratosphere. Nope.
Revenues are up roughly 75%. But spending has more than doubled. And over the next five years, revenues will continue to climb, even with the Trump tax cuts in place. But the CBO says that, if nothing else changes, federal spending will continue to climb at a faster pace. After rebounding from the recession, revenue growth flat-lined starting in 2015. That was three years before the Trump tax cuts went into effect. The CBO expects revenues to resume their steady climb starting this year. So, revenues flat-lined before Trump’s tax cuts went into effect, and will steadily rise after, and we’re supposed to believe that the tax cuts are the problem?
Of course, one could argue that the country should close the gap between revenues and spending by sharply raising taxes or through some combination of tax hikes and spending cuts.
But the tax hikes needed to close this gap would cripple the economy, resulting in bigger deficits, not smaller ones. And budget deals that promise spending cuts in exchange for tax hikes never work as promised. Sure, polls show the tax cuts are unpopular. But that’s because many politicians and the press have been grossly misleading about it. And because pollsters never ask about specific provisions of the tax reform, each of which the public strongly supports.
One year after Trump signed the tax cuts into law, there’s plenty to celebrate.
Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at www.halbertwealth.com.