Since the Great Recession ended in 2009, the U.S. has been locked in the worst economic recovery in our history. GDP growth rates over the eight-year Obama era have been just over 2 percent, a growth recession, while middle class wages are flatlining nationwide.
A recent report from Sentier Research found that median household incomes at the end of 2015, when adjusted for inflation, remained unchanged from 2007. That equates to eight years with virtually zero income gain.
Although U.S. consumers have been subjected to failing growth rates and elusive income gains for eight years, the end is in sight. With the election of Donald Trump in 2016 and the installation of Steven Mnuchin and Gary Cohn as two of Trump’s top economic masterminds, U.S. growth can again be robust.
At the crux of the economic revival will be tax reform. Trump and his advisors are advocating for both lower corporate and personal income tax rates as a medium for spurring U.S. economic growth. It is these policies from the new administration that will lift the U.S. out of its rut and improve wages for hardworking Americans.
Critics of tax cuts for corporations contend that such measures would do little to help workers. The Center on Budget and Policy Priorities explores this notion in its report, “Corporate Rate Cuts Are a Poor Way to Help the Economy and Most Workers.” The report notes, “Corporate rate cuts could actually hurt growth and the majority of Americans.”
This, however, is simply not the case. The excessive tax burden that has been placed on corporations is one of the core reasons we have experienced such low economic growth rates over the past eight years.
A more accurate representation of the effect of tax cuts comes from the article “Global Competitiveness and the Corporate Income Tax” by Gordon Gray. In this report, Gray notes, “A 10 percent reduction in the corporate tax could increase economic growth rate by 1 to 2 percent.” Further reports have suggested that the proposed corporate tax cuts from the Trump administration would raise GDP by about 3.4 percent over 10 years.
As is the case with corporate tax rates, reductions in personal income tax code have significant benefits for the broader U.S. economy. Opponents of income tax cuts argue that the benefits of income tax cuts are overstated.
Such a correlation is drawn in Andrew Fieldhouse’s article, “A Review of the Economic Research on the Effects of Raising Income Tax Rates.” In the article, Fieldhouse notes, “Analyses of top tax rate changes since World War II show that higher rates have no statistically significant impact on driving economic growth.”
Although Fieldhouse attempts to depict a negative picture of income tax cuts, the evidence does not support such conclusions. In the article “The U.S. Tax System: Who Really Pays,” Stephen Moore notes, “Indeed, lower income tax rates encourage investing in America where investors and entrepreneurs will start or expand businesses and create jobs thus expanding economic growth.”
As Moore shows, the tax cuts on income will further spur American innovation and growth. With the corporate and income tax cuts proposed by the Trump administration, American economic growth will thrive. With this revival of economic growth, the U.S. will finally be able to emerge from the anemic economic state which has plagued it for the past eight years.