January 6, 2017: 1Q2017 Economic Update
A large part of Trump’s political capital will be used to rewrite the tax code to lower personal and corporate tax rates and limit deductions (besides replacing Obamacare, increasing infrastructure spending, rolling back excess government regulations and probably a little tightening on immigration and increased nationalism to give red meat to his constituents). Therefore, an initial assumption would be to expect lower tax receipts and rising government budget deficit after the proposed tax cuts.
However, upon reviewing the most recent large tax reductions in history (under President Kennedy, President Reagan and President Clinton specifically), it appears the opposite occurred. Under President Kennedy, tax revenues increased 62% from 1961 – 1968, unemployment went from 5.5% down to 3.9%, and the stock market doubled. Under President Reagan, tax revenues went up 99% throughout the 1980s, unemployment peaked at 10.8% in 1983 then dropped to about 5.8% in 1990, and the stock market tripled. Under President Clinton, tax cuts in 1997 led to a 59% gain in tax revenue, eventually producing a budget surplus of $198 billion by 2000, unemployment continued down from 5.8% to under 4%, and the stock market doubled from 1997 – 2000.
In all three of the above cases, citizens in the top income tax bracket felt an upsurge in their share of the tax burden (lower % but higher $) while real wages grew across the board. The heart of the problem is declining median income and this directly contributed to Trump’s popularity in the recent election. The average U.S. median income of $57,423.00 in 2007 dropped down to $53,718.00 by 2014 while the top 10% of income earners grew. It is Main Street’s hope to gain real wage increases again.
READ MORE: Optivest 1Q2017 Economic Update