President Donald Trump came to the White House in 2017 with a promise of economic growth. On election night, he proclaimed that he was ready to “double down growth and have the strongest economy anywhere in the world.” Now, as 2018 approaches, the president is still trying to deliver on that plan. He is betting that tax cuts that he just signed into law will help boost U.S. growth prospects.
America’s economy is already humming. Growth topped 3 percent in back-to-back quarters in 2017, though annual growth is likely to come in below that, consistent with a general trend going back to the 1990s.
Still, under this president, 1.7 million jobs have been added, while unemployment has fallen to just 4.1 percent, the lowest rate in 17 years. Economists consider a jobless rate below 5 percent to be akin to “full employment.” At that level, demand for workers should drive up the amount companies are willing to pay to keep them on their payrolls.
Even though job hiring is expected to continue in 2018, wages still have room to grow. Average hourly earnings have only risen by 2.5 percent in the past year, which is not much of an improvement.
More dramatic is the climb in the stock market since Trump came to the White House – the S&P 500 stock index has gained 20 percent in 2017.
However, the fact is that President Trump inherited an already booming economy. Markets, jobs, and wages are simply continuing their upward trajectories – and they are likely to continue to do so in 2018.
Yet the stock market is a poor barometer for how most Americans are doing in this economy, because they aren’t benefiting from its gains. Only half of Americans even invest in stocks, mostly through their 401(k) and other retirement accounts. And, according to the National Bureau of Economic Research, 80 percent of market gains only benefit the top 10 percent of earners.
Now, critics are warning that businesses and the wealthy will mostly profit from the president’s tax reform package.
“What the middle class really does need are jobs and wage growth,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who served the Obama White House as chief economist and senior adviser.
“The whole trickle-down sales job has been belied by every historical example of these kinds of cuts,” he said.
The Trump administration disputes his claim, citing its own research that slashing corporate rates will increase worker incomes by $4,000 a year or more.
But critics question the White House’s numbers. The author behind the research, Kevin Hassett, who leads Trump’s Council on Economic Advisers, said he studied other countries that have made similar tax cuts.
“The fact is that countries around the world have cut their corporate rates and had broad-based reforms on the individual side and seen economic growth, as a result,” he told reporters in October.
Whatever the case, it’s clear that President Trump is banking on big business and the country’s rich to grow the economy even more for all Americans. It remains to be seen if he can succeed.