History bodes well for Trump tax plan
President Barack Obama has the worst economic record of any postwar president, as measured by gross domestic product, which accounts for all economic activity in the U.S.
The average GDP for all postwar presidents was 2.9 percent. Obama’s was 1.5 percent, resulting in stagnant wages, slow job growth and declining income for middle-class families. For every 1 percent increase in GDP, the economy adds 1.2 million jobs.
Can President Donald Trump’s plans improve on Obama’s 1.5 percent and revive the sluggish economy? Let’s look at his proposals, and at history.
Trump’s plan is to slash taxes. A married couple with two children earning $50,000 will see a 35 percent tax cut. The number of tax brackets will be reduced from seven to three. The largest cuts will go to the middle class, but every bracket will see a reduction. Businesses tax rates will go from 35 percent, the highest in the world, to 15 percent. Multinational companies will be able to bring money back to the U.S. (repatriation) and pay a 10 percent tax.
Tax cuts mean that people will keep more of their hard-earned money. More money in our pockets means more spending and an incentive to work and earn, which will drive the economy. The 10 percent tax on repatriated money will flood the U.S. with trillions of dollars for businesses to invest in plants, equipment and job creation. Economic growth means more jobs, higher wages and an improved standard of living.
Warren G. Harding and Calvin Coolidge inherited a depression as deep and painful as the Great Depression. They responded by cutting everyone’s taxes. They lowered the top bracket 73 percent to 25 percent; the lowest bracket saw a decline from 4 percent to 1.5 percent. The result: Unemployment averaged 3.3 percent from 1922 to 1929; GDP increased 7 percent every year from 1924 to 1928; and per capita income grew by 30 percent. Hefty tax cuts rescued us from economic ruin and made the 1920s roar.
In 1962, John F. Kennedy proposed tax cuts to jump-start a sluggish economy. He proposed 20 percent cuts across all tax brackets; the top bracket declined from 91 percent to 70 percent. The Kennedy tax cuts sparked the 1960s boom. GDP averaged more than 4 percent per year, and wages, jobs and family income all grew.
President Ronald Reagan inherited a slow-growth economy with double-digit inflation and interest rates. Reagan cut taxes for everyone. GDP jumped to 4.9 percent at first, then averaged 3.5 percent for Reagan’s entire term. Average family income increased $4,000. At the end of Reagan’s eight years in office, 20 million more Americans were employed than when he began.
President Trump’s critics smear him to divert attention from the failure of Obama’s economic policies. Trump’s economic proposals got him elected, and if history is any guide, they are bound to succeed.
Mike Morrongiello is a Town of Corning resident.