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Tax cuts and jobs: The start of economic growth and Trump prosperity

Written By | Mar 12, 2018
Jobs, Trump Prosperity, Economy,

WASHINGTON, March 12, 2018. – Recent new jobs numbers for the month of February show that economic growth and Trump prosperity is beginning.  It has been so long since Americans felt true economic prosperity, these numbers are welcome.

And they are just the beginning.

True economic prosperity means that the US economy is growing at more than a 4% annual rate.  When that happens, underemployed workers will find job opportunities that fit with the skills they acquired.  It also means that discouraged workers, who have dropped out of the labor market, will return.

February jobs report is just the beginning of tax cuts economic growth

In February, more than 300,000 jobs grew the US economy.  That number is surprising for many reasons but considering events, storms, and fires, it is remarkable.  The numbers are seasonally adjusted, but the severe weather for much of the country may be pushing the number downward.

It has been nearly two decades since Americans have seen economic prosperity. The year 2000 was the last time economic growth exceeded 4%.  It has been 12 years since the economy grew at an annual rate of at least 3%.  That represents the longest period of economic stagnation in US history.

The February jobs number show that the economy is poised to take off this year.  Even though the consensus view is that we will experience 3% growth this year, the reality is likely to be much different.  And it is all a result of the policies of the current administration.

President Obama never set economic growth as a goal.

The prior administration’s primary economic policy goal with was to cure perceived social injustices.  As such the fiscal policy stimulus by Obama was targeted to provide funds for industries where there was little market demand, like alternative energy sources such as solar or wind power. Obama believed it was a social injustice that the US consumed fossil fuels.

From a social standpoint the alternative energy industry is great for the environment, but economically if the products are not purchased the economy doesn’t grow.

Obama determined the US had a severe social problem because of income inequality.  So, he raised taxes on the highest income earners.  He also increased payments for food stamps and welfare.  He then gave low-income earners free health insurance.

Obama reasoned by reducing the disposable income of high earners and increasing the income of low earners he would reduce income inequality.  The result, however, was the worsening of income inequality.  His policies did work against economic growth.

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Obama’s Anti-Manufacturing was Pro-Environment

Obama saw manufacturing as yet another social problem.  He believed the environment was being harmed by American manufacturers.  He placed environmental restrictions on how and what American could produce.  These regulations added costs to business and tended to slow economic growth.

Obama saw another social problem that he saw causing the financial crisis. Big banks and mortgage companies took advantage of consumers by granting mortgages to low-income people who freely applied for mortgages.  Virtually all banks that originate mortgages sell them, typically to Fannie Mae and Freddie Mac.

Those agencies said they would purchase mortgages with no down payment requirements. They were also offering low-interest rates in the early years.  So that’s the type of mortgages the banks would grant.

Obama said this was predatory lending while encouraging Congress to pass the Dodd-Frank bill to eliminate “predatory” lending.  The problem was that the bill reduced all lending.

Without banks’ lending money, monetary policy cannot stimulate economic growth.

Here comes Trump prosperity.

The February jobs numbers not only show that more than 300,000 new jobs were available to Americans. It also shows that more than 800,000 workers, those who gave up on finding work, were able to re-enter the jobs market.

Trump has already removed burdensome and counterproductive regulations.  He has instilled confidence in all sectors of the economy. That confidence has caused the stock market to rise so Americans feel wealthier.  Then he cut taxes.

Cutting the corporate tax rate from 35% to 21% means that corporations can create new capital for expansion.  It also means previously marginally profitable projects now become profitable so business will invest in expansion.

It also means that US companies who have technically moved their headquarters outside of the US will return.

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It may also mean that some foreign companies may relocate their headquarters to the US to take advantage of the low tax rate.

Tax Cuts benefit American workers.

The lower rates mean the average American will see a $2,000 increase in disposable income in the short term and will likely see a $4,000 annual increase in the longer term.  This too will stimulate economic growth.

Trump’s tax cuts will be more effective than Obama’s increase in spending. That’s because Americans will spend the money on products that they demand.

While the consensus view is that the economy will grow at about a 3% rate this year, many signs are pointing to much stronger growth, likely in the 4 ½% to 5% range.

Finally, America will return to true economic prosperity.  Thank you, President Trump.

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.