Numbers show Trump tax cuts helping wealthy, not economy

Late in 2017, the Trump Administration pushed the "Tax Cuts and Jobs Act" through Congress. Promising it would stimulate economic growth to record levels, Trump's signature legislation cut federal income taxes, primarily for wealthy individuals and corporations, by a projected $1.5 trillion over 10 years. In related news, the federal deficit for FY2019 is projected to reach $1 trillion. For those of you keeping score at home, this means the Trump Administration has created a federal deficit that's over 50 percent greater than the one inherited from President Obama.

Which is funny, given that Trump's Treasury Secretary, Steven Mnuchin, repeatedly assured voters that Trump's "tax plan will pay for itself with economic growth." In making this assertion, Mnuchin simply followed the same reasoning President Reagan used when he ushered in the era of "supply-side" economics in 1981. Supply-side theory itself is pretty simple: cutting income taxes for high-wealth individuals will, in all cases, stimulate faster economic growth than what occurred when their taxes were higher, because wealthy folks will have a big incentive to invest more to earn more, to take advantage of the lower tax rates. And that bump in investment is what creates the boom in job growth that "trickles down" to everybody else. Which sounds good in theory, but has never actually worked in practice.

Start with the progenitor of supply-side, President Reagan. He cut the top federal income tax rate for the wealthy significantly, from 70 to 50 percent. Like Trump, Reagan claimed this would stimulate so much economic growth that the tax cut would pay for itself. But it didn't. Instead, federal revenue plummeted by around nine percent in just the first two years of his administration, which drove deficits up sharply. But wait, didn't the economy perform well under Reagan? Well, yes. After suffering through the stag-flation era of the mid-to-late 1970s, real GDP growth under President Reagan averaged 3.5 percent per year - although most of that growth was attributable to increased federal spending under Reagan, not his tax cuts.

That said, GDP growth during the Reagan era of supply-side tax cuts underperformed the average real GDP growth of 3.8 percent per year America realized from the end of World War II through 1979, when top marginal federal income tax rates were quite high - varying from 90 to 70 percent.

After the 1980s, President Bill Clinton increased federal income taxes in 1993. During his two terms in office, real GDP growth returned to its historic average of 3.8 percent per year. Meanwhile, Clinton's tax increases allowed him to reduce the federal deficit. Then came President George W. Bush, who returned to supply-side tax cuts to stimulate economic growth - without anything to show for it. Indeed, real, average GDP growth under George W. Bush dropped to just 2.6 percent per year.

Which brings us to today. Yes, the economy overall looks strong, as the nation has seen 128 consecutive months of expansion. That's over 10 years of continuous economic growth post-Great Recession, beginning under the Obama Administration and continuing through Trump's. Given that long sustained expansion, you'd think that if there was any validity to supply-side, the 2017 tax cuts would have generated red hot economic growth. And you'd be wrong. According to the BEA, real GDP growth was 2.9 percent in 2018, is projected to be 2.3 percent for 2019, and according to the Federal Reserve Bank of St. Louis, "will dip below 2 percent in 2020."

All of which means the national economy has grown at a slower rate during every period of supply-side tax cuts, than it did when top federal tax rates were much higher. Because of that, these tax cuts never "paid for themselves." So it should surprise no one that Trump's 2017 supply-side tax cuts are driving near record levels of debt, and a trillion-dollar deficit. All to finance tax cuts for the wealthy, not stimulate the economy.

Ralph Martire, rmartire@ctbaonline.org, is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.