Brief #20—Economic Policy
Tax cuts were one of the primary elements that Donald Trump used to garner voter support during his 2016 presidential campaign. He spoke of tax cuts that would improve the lives of citizens nation-wide, never alluding to the potentially negative effects that could also stem from such a maneuver. He pitched these tax cuts as if they were a solution that could easily fix the economic problems the U.S. was facing, particularly for America’s workers
Over a year into Trump’s presidency, the effects of the tax cuts are quickly becoming apparent, particularly their negative aspects that most of the nation is feeling. Already alarmingly high, the federal budget deficit is nearing $1 trillion.
The first six months of 2018 saw corporate taxes gathered by the federal government sink to some of the lowest levels history has seen. This is hardly surprising, as the tax cuts introduced by the Trump administration lowered the standard corporate tax rate from 35 percent to 21 percent. This is helped by the further component of the legislation that allows companies to deduct most new investments immediately.
As corporate tax funds have fallen, the federal budget deficit has continued to rise. While U.S. economists knew that the deficit would increase, most did not suspect that it would happen so quickly. At the time of the tax cuts, the Trump administration claimed that an initial decrease in tax revenue would not prove a problem for the deficit, as the increased revenue and spurred economic growth generated by the tax cut would cover any initial losses. This has clearly proven to be false, but even the White House has noted that they did not expect the deficit to rise as quickly as it has.
The 1940’s saw the United States Department of Commerce begin to compile extensive data on the subject of corporate tax collection and revenue following a significant drop in revenue from corporate taxes. Current data tells us that it did not sink that low until 2009 when the Great Recession was running its turbulent course on the U.S. economy and the revenue generated by corporate tax collections dropped by roughly a third. In the near decade since, they have not fallen so low until this fiscal year when tax payments from corporations again dropped by a third. Federal data indicates that as a share of the national economy, tax revenue had not fallen so far in 75 years.
It is true that most corporations have benefited from these tax cuts but as a share of the economy, their profits are still below the peak that they reached during President Barack Obama’s time in office.
The rate at which the federal budget deficit is approaching $1 trillion is not something that we can afford to ignore. There are multiple reasons that the clear effects of the Trump administration’s tax cuts on the budget deficit are concerning and could easily prove problematic.
The current trade war caused by the administration’s tariffs has created the need for further government spending, at least from the perspective of the Trump administration. The recently proposed $12 billion in aid for America’s farmers will require even more federal aid and farmers are not the only group that has felt the negative effects of the trade war. Fisherman and various types of manufacturers could also require emergency relief aid which would require even more federal funds generated by taxpayer dollars.
As has been the case with the emergency relief aid promised to America’s farmers, this budget deficit increase is a distinct example of a policy change enacted by the Trump administration that many deemed unnecessary. Economists have clearly stated that had the U.S. tax system not been changed by the tax cuts, the country would not be experiencing this budget deficit rise.
Another parallel between the tax cut and the trade tariffs is that both were presented by the Trump administration as policies that would prove beneficial to the American workers. Before the tax bill was passed, the administration argued that it would allow corporations to take the funds they were saving from the tax cuts and reinvest them in expanding production, thereby creating jobs and helping their current workers when increased revenue tricked down into wage increases. It would be beneficial for everyone, they argued, because although the portion of tax revenue collected from each corporation would be smaller, it would ultimately from a bigger pie.
Nonpartisan Washington D.C think tank the Center for American Progress recently published a report that clearly indicated that real average hourly earnings of the typical American worker have not changed in the past fiscal year. Over the same period, 80% of workers in production areas saw their wages dip by 0.2% while real median weekly earnings have dropped slightly as well. One economist from the institute stated that workers were “Not getting ahead in the Trump economy” and that certainly seems to be true.
This ‘Trump economy’ has fostered some economic growth but policy change results like those that have stemmed from the tax cuts are clear indicators that this growth may not be sustainable. A rising federal budget deficit does not have the markings of being a harbinger of long-term economic prosperity. The trend of the unnaturally strong economy is often alarming for economists who have seen these superficial booms prove to be dangerous and this time is no exception.
- The Center for American Progress is a nonpartisan research organization dedicated to improving the lives of American through progressive ideals and leadership.
- Stand Up America is a grassroots organization dedicated to resisting the Trump administration’s agenda and helping others learn about it’s policies.
- The Committee for a Reasonable Federal Budget is a nonpartisan research organization that is committed to addressing federal budget and fiscal matters.
This Brief was submitted by USRESIST NEWS Analyst Samuel O’Brient: Contact Sam@usresistnews.org
Photo by Rick Tap