As 2018 draws to a close, America is prospering in ways we have not for years. While challenges remain, we have seen record-setting wage increases and the lowest unemployment rates in two generations.
Much of the credit for that goes to the Tax Cut and Jobs Act, signed into law just over a year ago, on Dec. 22, 2017.
Derided in some quarters as the end of the world, the law has actually had the opposite effect in the few short months it has been around. And, because this law fundamentally shifted incentives in our tax system to promote stronger growth and investment, we will continue to feel its benefits for years to come.
According to estimates from the nonpartisan Tax Foundation, economic growth will be around 2 percent greater from 2018 to 2027 because of tax reform. This is projected to boost the GDP by $5.3 trillion, increase wages by an additional 1.5 percent and create 340,000 more jobs than would have otherwise been created.
Prior to the passage of the Tax Cuts and Jobs Act, American businesses were at a marked disadvantage to their international counterparts, with the highest corporate tax rate in the industrialized world.
A signal promise made by supporters of the 21 percent corporate tax rate was that it would make American businesses more competitive and boost wages. What we’ve seen over the past year is the best wage gains in nearly a decade – an increase of 3.1 percent – and increases in spending on plant and equipment as well as on research and development.
The bill cut taxes for the average American household in every state as well, providing a savings in 2018 of $1,400 for individuals and $3,000 for married couples with two children. Over the next decade, that savings coupled with higher wages will amount to $26,000 for individuals and nearly $45,000 for married couples with two kids. That’s a good start toward a college education, a down payment on a home, money to launch a business or chase a dream. Of course, too many politicians in Washington prefer to spend our hard-earned money in ways that bolster their political futures, rather than letting people invest their earnings in their families, communities and businesses. So even while members of Congress from both parties were cooperating in a bipartisan spending binge, there was simultaneous fretting that the Tax Cuts and Jobs Act would crater tax revenue and do nothing for the economy.
Quite the opposite happened.
Instead, the law is boosting the economy and growing GDP. And as the economy grows, so do tax revenues. The Treasury Department reported that revenue collections in 2018 were $3.3 trillion. That’s almost $14 billion more than in fiscal 2017. State revenue collections are also up, thanks in part to the growing economy.
The truth is, revenue isn’t the problem. Spending is. From 1989 to 2018, revenue has grown at a compound annual rate of 2 percent. During the same period, spending has grown at 2.2 percent. Between 2014 and 2018, the difference was even greater: revenue grew at 1.1 percent, and spending at 2.6 percent. Revenue is going up. Spending is just going up more.
If Washington can just start spending more responsibly, the debt will shrink. And there’s no time like the present to start chipping away at this massive problem. In the next session of Congress, that means getting serious about curbing discretionary spending while also exploring options and opportunities for reforms on the mandatory side of the ledger, as well as eliminating corporate welfare throughout the budget.
In any case, as we celebrate the holidays and observe the first anniversary of the Tax Cuts and Jobs Act, Americans from all sides can be thankful that the doomsday predictions of tax reform opponents didn’t come to pass. So, let’s lift our glasses and offer a toast to a brighter and even more prosperous 2019.