President Trump signed the Tax Cuts and Jobs Act into law on Dec. 22, 2017.
The bill had narrowly passed in both houses of Congress earlier that week, despite some wonderful-sounding promises from GOP legislators and members of the Trump Administration about the effects this bill would have on the nation’s economy, if enacted.
Rep. Darin LaHood (R-Illinois), for instance, remarked that this bill would “get the economy roaring again”.
Sen. John Thune (R-South Dakota) complained that, under President Obama, the nation only averaged “1.5 to 2 percent growth.”
In fact, Trump boasted that the bill would put economic growth above 4 percent.
Though the phrase “economic growth” sounds broad, it actually refers to only one measure of our economy — the gross domestic product (GDP). It does not refer to other measures, such as the unemployment rate or stock market indexes.
For context, the unemployment rate peaked at 10 percent in October of 2009, shortly after President Obama took office, and has since fallen to a mere 4.1 percent, according to the Bureau of Labor Statistics.
And all of this occurred without the legislative wisdom of the GOP tax bill, which begs the question: how much better could the economy possibly do now that it’s been passed?
Admittedly, it is true that under Obama, GDP growth remained stagnant at around 2 percent, sitting below the nation’s historic average of 3.2 percent, according to the Congressional Budget Office (CBO).
The reason for this stagnation, however, has nothing to do with taxes, which is why the bill is doomed to fail and was passed under false pretenses.
Overall GDP growth is broken down into two more specific types of growth: productivity growth and labor force growth.
Since 1950, productivity growth, on average, has been approximately 1.7 percent, while labor force growth has been 1.4 percent, giving the nation its combined total of around 3.2 percent growth.
Over the next 10 years, the CBO predicts GDP growth will continue at a rate of 1.9 percent. Of that 1.9 percent, 1.3 percent will be due to productivity growth and 0.5 percent to labor force growth.
The obvious problem is the dwindling growth of the labor force, which has entirely nothing to do with taxes, corporate or otherwise.
Even if the Tax Cuts and Jobs Act raised productivity growth to its historic level of 1.7 percent, our total GDP growth would still be a mere 2.3 percent.
If Republicans are truly interested in explosive GDP growth, they need to take a hard look at expanding the labor force, which can be achieved by an increase in the fertility rate and an influx of immigration.
Republicans seem to be particularly against the latter, which means it’s up to Millennials and Generation Z to have more children. The fertility rates among those age groups, however, have decreased in recent years, which researchers at the Urban Institute have attributed to economic anxieties.
So if the GOP were really interested in economic growth, they wouldn’t give tax cuts to corporations. They’d make healthcare free and require paid maternity leave.
