Phil Gramm and Michael Solon explain in The Wall Street Journal’s Opinion section, that the Trump tax cuts are on their way to paying for themselves with increased economic activity. They writes:
For a midterm report card on the economy under President Trump, take a look at two recent government reports. The Commerce Department reported Thursday that real gross domestic product grew by 3.1% from the fourth quarter of 2017 to the fourth quarter of 2018—the largest rise in 13 years. And last month the Congressional Budget Office reported that even if the current surge in economic growth isn’t sustained, the revenue residual from our current strong growth rate will pay for some 80% of the projected cost of the 2017 tax reform. While these reports reflect only the initial impact of the tax cuts and the deregulatory effort, any objective evaluation would give the administration’s economic program high midterm marks.
The tax cuts and the lifting of regulatory burden have produced an economic takeoff that had failed to occur under the policies of the previous administration, despite a doubling of the national debt and the greatest monetary easing in the history of the Federal Reserve. Many respected economists in those years concluded that America suffered from “secular stagnation” and was incapable of strong growth. But today, greater than 3% GDP growth for the first time in 13 years makes it clear that bad policies rather than fate were the cause of the failed recovery. Slowing global growth, a looming trade war and socialist tax and spending proposals by Democrats in Congress all threaten to nip the recovery in the bud, but for now the economic triumph continues.
When the economy was shackled by tax increases and adversarial regulations, private investment lagged, productivity fell and labor-force participation dropped among prime working-age persons. Since 2017 private investment has returned to the levels that drove other postwar recoveries, and productivity and labor-force participation are rising.
Before the tax reform took effect the CBO projected that the tax cuts would have only a modest impact on economic growth, and it continues to predict that stagnation lurks around every corner. Yet it now has projected in consecutive annual reports that higher-than-expected growth will add an extra $1.2 trillion to federal revenue in the coming decade, covering about 80% of the Treasury’s original projected cost of the tax cuts. If 3% growth is sustained for another year, the growth surge will have paid for the tax cuts.
Read more here.
Jeremy Jones, CFA
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