The act made numerous changes to both the individual tax rates and the corporate tax rates as a quick refresher. The recent changes in tax for the individual households were mixed, with the wealthiest households also receiving significant cuts but these changes for the middle class households also varying, just depending on the individual circumstances like whether the filing married or jointly, the state of residence, and the number and type of the deductions claimed. Recent corporate tax changes were also seems quite complex, but in this, the most impactful portion was the lowering the headline rate to 21% from 35%.
The Secretary of Treasury of President Trump’s Steve Mnuchin succinctly outlined the rationale for tax cuts in an interview with CNBC.
“So our tax plan was really designed to stimulate the economy and get growth,” Mnuchin said. “So we’re humming along on where projections are and as I’ve said at 3% economic growth this tax plan will not only pay for itself but in fact create additional revenue for the government.” Bundled in that are really two rationales: economic growth and federal budget deficit/surplus. So how have things turned out?
If look at the economic growth, most ideal measure would be the median household income but it is difficult to calculate and our most of the recent data came from 2017. But if we look closely at the wage growth, the blue line in chart, and unemployment rate, is the orange line in chart both of which have the most current data. In the given chart below, if we look at the dotted line shows that when TCJA was enacted. In the chart, higher wage growth is depicted in the blue line, is good and the lower unemployment rate is the orange line is also bad.
Both numbers were not appreciable, as you can see in the Great Recession and have been improving since then, and both have been moving in good directions since TCJA was passed. The downward motion of unemployment rate, it has gone from 4.1% to 3.7%, and the wage growth has also grown from 2.9% to 3.9%. But it’s still unclear how much the TCJA led to these numbers. Both the decline in unemployment rate, in particular seems to be more a continuation of a trend that is from previous decade. At the same time it’s always difficult to really understand the impact of tax changes, on the economy.