Tax cuts have been a controversial topic between Republicans and Democrats for decades on end, with much debate being over its effects on the economy and each class. With Trump’s tax bill passed a little less than a year ago, this debate has heightened. However, despite the fact that the economy is flourishing, critics continue to argue against the tax bill and tax cuts in general, believing that they have done more harm than good. To discredit this claim, let’s first take a look at a past successful tax cut.
Prior to the Reagan Administration, there was a major energy crisis that the Carter administration was unable to solve, causing stagflation in the U.S. economy. When it came to economic growth, Reagan promoted massive tax cuts and an unrestricted free market (Reaganomics); which in return would bring about economic success. After a combination of Reagan’s leadership and Reaganomics, near the end of his second term, inflation was lowered to 4% (with the help of Federal Reserve Chairman Paul Volcker), the unemployment rate was under 6%, and the recession ended. Additionally, Reagan was the second-largest job creator (Bill Clinton was the first) and added 16.5 million jobs during his eight-year term. Furthermore, throughout Reagan’s presidency, the compound annual growth rate of GDP was 3.6%, compared to 2.7% during the preceding eight years. Many families benefitted from Reagan’s policies, with “median family income growing by $4,492 during the Reagan period, compared to the $1,270 increase of the last eight years.” Under Reagan, the economy was one of the longest and strongest periods of prosperity in American history, thus proving that tax cuts massively benefitted the economy and the people.
Now, back to the present.
President Trump signed the Tax Cuts and Jobs Act on December 27, 2017. Many critics view it as a bill that does not help the middle-class and will actually harm the economy instead of benefitting it. However, this is not true. Trump’s tax bill helps families, with the child tax credit doubling to $2,000, helping millions of American families across the country. According to the most recent IRS data, more than 22 million people used the child tax credit in 2015. Additionally, many condemn the fact that the maximum corporate tax rate was lowered from 35 percent to 21 percent, by stating that companies will only use this extra money towards increasing stock dividends, thus not helping the middle-class overall. However, this is not the case. Although companies did raise stock dividends, it was not the prime way that companies spent their extra money. In fact, major corporations gave back to their employees. For example, large banking company Fifth Third declared that it’s raising its minimum wage to $15 for all employees and giving a $1,000 special bonus to more than 13,500 employees, specifically because of the tax cut. Another company, Comcast, pledged to give $1,000 bonuses to 100,000 non-executive employees. AT&T did something similar and gave $1,000 bonuses to 200,000 of its employees. These cases are not isolated, because more than four million people are receiving bonuses, benefit increases and higher wages from hundreds of companies. This amounts to some $4 billion back into the pockets of the working class, exhibiting how widespread of an effect this bill has had on the middle and working class. Furthermore, according to the Tax Foundation’s growth model, their model estimates that 215,000 full-time equivalent jobs will be created by the end of 2018. These actions all happened as a result of the recent tax bill, illustrating how tax cuts help the middle and working class. Many have received generous bonuses and wage increases, enabling them to live more comfortably and better their quality of life. There are also more job opportunities, providing people with more choices in finding their career path.
On top of helping the middle-class and families, let’s take a look at the bill’s effects it has had on the economy. The economy grew at a 4.1 percent rate in the second quarter of the year, the best quarterly showing since 2014. And as for consumer spending, it rose 4 percent in the spring quarter, the biggest increase since 2014. Hiring speeds are rapidly increasing, with American factories hiring at their fastest rate in two decades.The unemployment rate fell to 3.7 percent in September, its lowest level since 1969, showing a strong labor market. Tax cuts have ushered in strong economic performance for the U.S., thus proving the bill’s rewarding benefits.
With the Reagan administration already illustrating tax cuts’ past success, and the Trump administration already experiencing economic prosperity, the conclusion about tax cuts is clear: by cutting taxes the U.S. will reap in a plethora of benefit. Many detractors will continue to criticize this bill, however, it is clear that this bill and tax cuts in general changes lives and the economy for the better.