One Year After President Biden’s Inauguration: Economic Outlook, the Decisive Difference From Trump’s First Year


Key points of this article:

  • Former President Trump: let’s talk wages over GDP
  • Large-scale tax cuts increased annual pre-pandemic household income by $8,000
  • “Growth-and-labor-oriented” large-scale tax cuts led to wage hikes


U.S. consumer prices rose 7% in 2021, the biggest increase in 39 years, and an “inflation tax” is hitting the public — another negative factor for President Biden as he hits the one-year mark on Jan. 20.

The rise in illegal immigrants and the crime rate, among other factors, have caused the Biden administration’s approval rate to drop to 33%, and it is predicted that this number may further drop to 25%.

Mr. Biden’s incompetence is in stark contrast to January 2018, one year after the inauguration of former President Trump, when Americans felt more confident about the economy.

On Jan. 11, 2018, Walmart, the largest private-sector employer in the U.S., announced it would raise the starting wage rate for hourly employees to $11 from $9, in addition to providing a one-time cash bonus to eligible employees of up to $1,000.

In the same month, Apple, the world’s most valuable company by market cap, told employees that they will be receiving a $2,500 bonus in restricted stock units. Moreover, Apple paid about $38 billion in taxes to bring back $245 billion from overseas.

These were the effects of the Tax Cuts and Jobs Act that was signed into law on Dec. 22, 2017.

The details on the historic bill were explained in “The Drift: Stopping America’s Slide to Socialism,” published last November. “The Drift” was written by Kevin A. Hassett, a former senior advisor and chairman of the Council of Economic Advisors during the Trump administration from September 2017 to June 2019.

Mr. Hassett was raised in a rural part of Massachusetts where he witnessed his hometown decaying along with the Rust Belt from Connecticut to Michigan.

“Why is employment lost from my hometown? What can policymakers do about it?” With such questions in mind, Mr. Hassett majored in economics and began researching the impact of taxation on businesses and capital spending. He came to the conclusion that countries with low taxes were more successful in terms of employment and income levels.


Former President Trump: Let’s Talk Wages Over GDP

Mr. Hassett understood that the key was corporate taxes. With the highest corporate tax rate at 38.9%, the U.S. had the highest tax rate among the members of the Organization for Economic Cooperation and Development, as well as the fourth highest in the world.

When Mr. Hassett explained to Mr. Trump the impact of high corporate tax rates on capital spending, productivity and gross domestic product, Mr. Trump responded that he’d rather talk about wages over GDP. His reason was that wages are of greater public concern because wages represent money that people can take home.

The Trump administration reduced the highest federal corporate tax rate from 35% to 21%, announcing that this would increase GDP between 2% to 4% in 10 years and raise wages by $4,000 over three to five years.

High corporate taxes, along with China’s unfair trade practices, resulted in corporations shifting their profits to low-tax countries for tax avoidance and reduced domestic investment, productivity and wages. These were even affecting the average life expectancy.

Mr. Trump had ordered the U.S., “Tear down this rate,” just as Reagan stood in Berlin and called to the Soviets during the Cold War to tear down the wall.


‘There’s Going to be a $6.2 Trillion Deficit!’

Mr. Hassett revealed that the TCJA was not passed smoothly and Mr. Trump was under tremendous onslaught from both left and right.

The Tax Policy Center and Brookings Institution, which were closely related to the Obama administration, criticized the tax cut bill, saying that government revenue will be reduced by $6.2 trillion in 10 years and federal debt will increase sharply. The tax bill was almost killed because the claims of these established institutions seemed plausible.

Towards the end, the institutions conceded that if interest rates remained fixed, lowering the top marginal income tax rate would raise incentives for work, savings and investment.


‘Tax Cuts Will Inflate Debt!’

There were also a series of criticisms from the Republican Party.

The most notable criticisms were from advocates of budget hawks. Republican senator Bob Corker criticized that tax cuts would lead to lower revenue and blow up the nation’s debt. The TCJA could not be passed if a Republican senator objected. Critics had to be won over.

“Debt will blow up if you lower taxes.”

This is a stereotypical trap that anyone would fall for since it is sometimes difficult to capture economic dynamics with a static model.

Capital spending increases productivity, which in turn increases wages, eventually increasing revenue. This is the mechanism of the “virtuous cycle” that capitalism makes possible.

Many politicians and bureaucrats do not understand, nor try to understand, the positive economic cycle that arises organically because they want to publicize that it was the government that was able to control and “grow” the economy.


Tax Cuts Raise Annual Pre-pandemic Household Income by $8,000

In reality, there occurred a great economic circulation that economic advisors like Mr. Hassett expected, contrary to rebuttals from the Left and Republican advocates of budget hawks.

The following is an excerpt from a Wall Street Journal article, “Tax Reform Has Delivered for Workers,” that was published on Oct. 12, 2021, by Mr. Hassett and Gary Cohn, who served as Mr. Trump’s economic advisor and director of the National Economic Council:

“Capital spending was 4.5% higher in 2018 than pre-TCJA blue-chip forecasts, and this trend continued in 2019. This extra capital improved productivity and wages and, as expected, did so especially for those in lower-paying jobs…The growth rate [of nominal wages] for those without a high-school diploma was 9%… And about that $4,000? Real disposable personal income per household has increased $6,000 since the tax cuts were passed.”

Mr. Hassett and Mr. Cohn claim that not only did it take less than the predicted three to five years for household income to increase, but pre-pandemic household income in the U.S. increased by $8,000. The results are in complete contrast to the Obama administration, which recorded the lowest wage growth in history.

In the end, the Trump administration created seven million jobs.

In 2019, there were also 36 million food-stamp recipients with an average monthly income of $2,500 or less, which is comparable to the Canadian population. Of that 36 million, seven million are no longer recipients of food stamps. In addition, the Opportunity Zones, mostly in lower income areas, collected $75 billion in private investment funds. Was this truly the work of a “white supremacist”?


‘Growth-and-labor-oriented’ Tax Cuts Create Wage Hikes

As the aforementioned results reveal, Mr. Trump’s large-scale tax cuts were nothing but growth-oriented. It was also labor-oriented in that individuals became motivated to work; at a corporate level, the TCJA encouraged businesses to return to the U.S., domestic investment and wage hikes.

At the opposite end of the spectrum sits the Biden administration. Mr. Biden is trying to raise the effective corporate tax rate from 25.84% to 30.84%. He may be thinking that they can prevent the relocation of large companies by setting a minimum corporate tax rate at a global scale, but he fails to understand the virtuous cycle of a corporate tax cut: greater capital spending, increased productivity and higher wages.

Now, what about politicians in Japan? The “wage hike” due to corporate tax benefits is the opposite of what the Trump administration did. Considering that pre-pandemic annual household income increased to $8,000 from $4,000, a well-off private sector invites greater household income far exceeding the benefit of the 100,000-yen (approximately $873) handouts. It would be the best protection of retirement assets.

The government does not create wealth, and therefore, it is the role of the government to organize an environment which would naturally encourage companies to raise wages. Japan will continue to fall into economic decline unless it stops moving toward big government, and ordering private companies in hopes of pulling the economy together.

(Hanako Cho)

One Year After President Biden’s Inauguration: Economic Outlook, the Decisive Difference From Trump’s First Year
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