By IPI President Tom Giovanetti
President Trump had a
well-received State of the Union Address last evening with a CBS poll showing
that 72 percent of viewers approved of the speech and a CNN poll showing 76
percent approved.
It was somewhat jarring to see a portion of the attendees withholding their
applause as the president ran through the excellent economic numbers the
country is experiencing right now. Dont they want a strong economy? The
numbers are impressive not only in contrast with those of the previous
administration but especially in comparison to most other countries which are
experiencing slower growth chronic unemployment and even larger relative debt
burdens.
We assert that the 2017 tax reform/tax cut pushed by the Trump administration
and passed by a Republican Congress is the primary factor behind this strong
economy and a recent Congressional Budget Office (CBO) report provides the
details as recounted in Investors
Business Daily.
Among other duties the CBO creates a baseline economic projection going out
several years based on current policies. In January 2017 (before Trump became
president) CBO predicted 2 percent growth in 2018 1.7 percent in 2019 and
1.5 percent in 2020. Those projections were based on Obama administration
policy and were generally in line with other projections.
Then came tax reform along with deregulation efforts and an expansion in the
energy sector. The economy picked up growing at 3 percent in 2018 and CBO now
expects 2019 economic growth of 2.7 percent.
In other words tax reform improved economic growth above CBO expectations and
now CBO has increased its growth expectations for the future.
The difference between 2 percent and 3 percent growth in an economy the size of
the U.S. is significant. Thats why 2018s unemployment rate was 3.9 percent
instead of CBOs expected 4.4 percent.
Based on Obama administration policies CBO expected a 2018 job creation number
of 94000 new jobs per month. But the actual post-tax reform number was
203000 new jobs per monthmore than double. Even workers on disability are
reentering the work force.
Tax reform is workingbut we have to keep telling the story.
One final nugget: According to CBO because the tax cuts stimulated economic
growth federal revenue is higher than projected. CBO calculates that the tax
cuts generated enough new revenue feedback to pay for 20 percent of the tax
cut.
CBO projections always overstate the cost of pro-growth tax cuts because they
ignore the pro-growth effects on revenue. But tax cuts that encourage
investment can partly pay for themselves just as supply-siders have always
claimed.
Which means even the new CBO projections are probably STILL underestimating the
benefits of the 2017 tax cuts.
Todays TaxByte was written by IPI President Tom Giovanetti.
