The Effects of Tax Cuts & Jobs Act Part 2: A National Perspective

In lieu of the Trump administration tax cuts, the Congressional Budget Office (CBO) predicted an annual tax revenue decline of 0.7%, yearly GDP growth of slightly over 2%, and the federal deficit rising to over $1 trillion within a decade. According to the administration, the Tax Cuts and Jobs Act 2017 was implemented as a 10-year plan to boost economic growth and investment immediately, while tackling the federal deficit in the long-run.

In the fiscal year 2018, tax revenue dropped by 0.8%, as forecasted by the CBO. Nonetheless, as total revenues rose, the annual GDP growth reached 3.1%, far higher than the estimated 2%. In the 2nd quarter of 2018, GDP growth hit the highest level in a decade, at 4.2%.

In addition to the high GDP growth, the U.S. economy produced on average 223,000 jobs per month in 2018, compared to an average of 186,000 jobs per month in 2017. Due to the national surge in job openings, unemployment reached the lowest levels ever recorded and wages were able to grow by 1.9%. The positive economic metrics had influence over the U.S. stock markets, with the S&P500 index closing at a record high in September 2018.

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The CBO may not have forecasted the favorable boost in economic growth, yet their emphasis on the rising deficit should be highlighted. Although annual tax revenue may have been reduced slightly, the increase in total revenue and the significant economic growth did little to impact the federal deficit in a constructive manner. Due to a large increase in congressional and government spending, the federal deficit drastically expanded by 17% since the fiscal year 2017. At this rate, the federal deficit is on track to reach $1 trillion by 2022 instead of taking a decade.

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The increase in congressional spending was in large part due to investment in numerous economic stimulus packages that created jobs, mainly in the manufacturing sector, while incentivizing American companies to stop outsourcing jobs and to relocate back to the country. The economic stimulus packages were successful in boosting economic growth and consumer confidence.

The U.S. economy has seen major improvements throughout 2018, but in order to combat the federal deficit, future congressional spending must decrease. As the TCJA 2017 has not yet been able to produce substantive development in the investment sector, regardless of the recent optimistic economic metrics, the U.S. federal deficit and national debt will continue to balloon unless spending is directly addressed.

Editing by Tom Handels

Charles van BurikComment