President Trump has unveiled his plan for changes to the U.S tax code. While there’s no shortage of economists in America. Whatever someone’s beliefs about the most likely impact of Trump’s tax plan on the economy, an army of economists armed with charts stands ready to support their position. Since it’s impossible to use a time machine to peek into the future, the best alternative is to examine what happened after previous major tax cuts.
The 1920s Harding/Coolidge Tax Cuts
After the end of World War I in 1918, the U.S. struggled to adjust to a peacetime economy. After the cancellation of wartime factory orders, wholesale prices plummeted and the unemployment rate doubled. President Harding took action to kickstart the economy.
Presidents Harding and Coolidge:
- Cut taxes 40%
- Cut expenses 50%
- Reduced federal debt 30%
- Had budget surpluses
Between 1922 and 1929:
- Real GDP had average annual growth of 4.7%
- Unemployment fell from 6.7% to 3.2%
The 1964 Kennedy/Johnson Tax Cuts
President Kennedy believed high taxes were stifling the economy and wanted all tax rates lowered. Kennedy correctly predicted lowering tax rates would increase tax revenues, raise personal incomes and increase both consumer and business spending. The tax cuts were passed by President Johnson after President Kennedy’s assassination.
The Kennedy/Johnson plan:
- Cut taxes $13.5 billion
- Lowered tax rates including a reduction of the top rate from 91% to 70%
- Reduced corporate tax rate from 52% to 48%
- Had average annual real GDP growth of 5.1%
- Lowered unemployment from 5.8% to 3.8%
- Created 9.3 million new jobs
- Generated a $3 billion surplus before the Vietnam War escalated in 1964
- Increased tax revenues in 1964 and 1965.
The 1981 and 1986 Reagan Tax Cuts
President Reagan inherited high unemployment and stagnant growth. The economic growth following the Reagan tax cuts is held up as the example to follow by anyone favoring tax cuts.
- Taxes were cut by about 25%
- The tax code was simplified
- The economy grew by more than 11%
- Unemployment dropped from 9.7% to 5.3%
- About 11.7 million new jobs were created
Trump Administration Proposed Tax Cuts
President Trump’s tax plan will undoubtedly go through numerous changes before or if it becomes law. Based on historic examples, the economy should grow dramatically.
Highlights of President Trump’s tax plan include:
- Lowering individual tax rates to 12%, 25% and 35%
- Doubling the standard deduction
- Lowering the corporate tax rate to 20% and the small business tax rate to 25%
- Allowing immediate expensing of capital investments
- A one-time repatriation of overseas corporate profits
- Eliminating loopholes and simplifying the tax code
How Will the U.S. Economy React When Trump’s Plan Becomes Law?
Historically, reduced tax rates have sparked economic growth. When people and businesses have more money, they typically spend more. A quick depreciation of new equipment should result in more factory orders. New jobs are created, creating competition for workers and higher salaries.
There is historical precedent for believing that Trump’s tax plan would boost the economy and create new jobs. A stronger and financially sound middle class is inextricably linked to sound economic policy and growth. Families at all income levels will feel more secure about their futures.
As expected, the Democrats and their liberal media co-conspirators are using the tired old lines of “Trump’s tax plan steals from the middle class to help the 1%”. This attack is dishonest and designed to rally their impressionable base who are too lazy to read the details of the plan. Tax cuts grow the economy, period.
Trump’s tax plan is good for America.