The 45th President of the United States was sworn in on the 20th of January, 2017. Despite being a controversial figure, namely due to his tweets and nonchalant character, insofar as many social media platforms eventually took to de-platforming him, his economic legacy is laudable on many fronts. With this said, his economic agenda deviated from the more ‘establishment Republicans,’ that had governed in the past decades. This led to an increase in rural support for the Republicans, with their traditional suburban voter base leaning more so towards the Democratic Party. Whilst on most economic issues, the Trump Administration was successful in promoting growth and prosperity for Americans, the governing Republicans were less successful on trade and federal spending.
One of the Trump Administration’s key objectives when coming into office, was to reduce the tax burden on American individuals. This was achieved via the passage of the Tax Cuts and Jobs Act of 2017, which passed through both Republican-controlled legislatures.
With regard to individuals, the top income tax rate was reduced from 39.5% to 37%. This led to greater investment in the US economy by these high-income individuals, thus leading to greater economic growth and prosperity. In addition, the Trump Administration doubled the child tax credit, from $1,000 to $2,000, in effect increasing disposable income for Americans across the board, thus giving them more financial freedom and choice in spending their money whatever way they please. Finally, the estate tax exemption was doubled from $5.6 billion to $11.2 billion. This creates a greater incentive for Americans to acquire wealth, promoting the investment of capital, thereby increasing the salaries of workers, given the increased productivity that comes with capital investment.
On the corporate side, the corporate income tax was drastically reduced from 35% to 21%. Likewise with the reduction in individual income taxes, cutting corporate tax stimulates further investment of capital into the economy. This in turn results in productivity gains, wage growth and greater employment. Thus, it is of no surprise that these three things were experienced following the passage of the Tax Cuts and Jobs Act legislation, with median household income reaching just under $66,000 annually by 2019 – a record high, when adjusted for inflation.
On this issue of regulation, the Trump Administration was similarly just as successful. The Republicans, after taking control of the White House, set out to eliminate government red-tape and create more opportunities for businesses to be innovative and successful. In Trump’s second week in office, the ‘2-for-1 executive order’ was announced, requiring that two regulations would have to be removed, for every new one introduced. However, the Trump Administration more than delivered on this promise, with 176 deregulatory actions taken in 2018, as a pose to 14 regulatory ones – a ratio of 13:1.
Deregulation enables more competitors to enter various markets, improving quality alongside reducing prices for consumers. These deregulatory actions are also said to have saved the Federal Government up to $23.4 billion in regulatory enforcement, over ten years. According to the Council of Economic Advisors (CEA), the deregulatory actions taken by the Trump Administration will have raised real household incomes by $3,100 annually, due to the increased competition and efficiency created through deregulation. Higher-income individuals will likely benefit more from said actions, due to their greater consumption, however, lower-income individuals will likely benefit more as a percentage of their income.
Given all the successes of the Trump Administration on the taxation and regulatory fronts, the failure to curb the excessive government spending that had grown under the previous Democratic Administration was a surprise. The Republican-controlled Congress passed legislation that eliminated the Obama-era spending caps in March 2017, with Trump signing this into law. This was the first signal that Trump wasn’t committed to fiscal responsibility, having signed one of the few positive pieces of legislation, passed under the previous Administration, just months after entering office.
The most notable example of profligate spending was in the unnecessary increases in the defence budget, with the US already having a larger defence budget than the next 10 countries combined, before the increases. As a result, whilst tax revenues increased by $133 billion between 2018-2019, government spending increased $339 billion more, thus citing the wasteful spending as the driving force behind the increases in government debt. This growth in debt will only hurt the future generations, given that spending reduction or tax increases will eventually have to follow, to pay for the excessive spending.
Finally, the protectionist trade policies adopted by the Trump Administration negatively impacted economic growth. Greater tariffs were levied on products such as steel, aluminium, alongside a several other products imported from China. This resulted in China imposing retaliatory tariffs on the US. These tariffs increased the costs of consumer goods, as they increased the price of imported goods, thus hurting Americans in the process. According to year-end numbers, US importers imported $543 billion in goods from China in 2018 and paid $23 billion in customs – a 4.2% increase. Consumers in the United States footed the bill for the almost $10 billion rise in tariffs.
The economy as a whole
As a whole, the Trump Administration was largely successful in promoting economic growth and prosperity for Americans, across all income groups. Whilst on issues such as government spending and trade, his policies were far from satisfactory, his taxation and regulatory actions led to higher levels of employment and higher wages – thus rendering his tenure a success.