President Trump has stated many times that improving the American economy is one of his major missions as President. He’s also stated that the tax cuts in the recently passed Tax Cuts and Jobs Act will further this mission, calling it “rocket fuel” that will supercharge the economy. Although the Tax Cuts and Jobs Act has offered some tax relief for tax payers, has it helped the economy?
According to the current data, the economy has not yet improved beyond the normal rate after the Tax Cuts and Jobs Act became law. In the first quarter of 2018, the GDP grew by 2.3%, which is lower than the last quarter of 2017, which showed a 2.8% growth. This 2.3% growth is also in line with the recent average growth rate of the GDP, which has been slightly up since the end of the Great Recession in 2010.
While there hasn’t been any significant growth yet, there could still be some in the future. It can be difficult to see immediate effects from changes in tax law. Additionally, the tax rates in the Tax Cuts and Jobs Act are scheduled to change from year to year for the next several years, so each year may show different results in GDP growth or decline.
The first quarter of each year is also often the quarter with the least growth, historically. So, that could also affect the growth rate we’re seeing now. Additionally, the 2.3% growth rate is only an estimate at this point (as estimated by the Bureau of Economic Analysis), so it’s possible the number will change with the expected upcoming revisions by the BEA.
Looking at numbers beyond the first quarter GDP estimate, there have been some changes in other areas that could indicate future growth. Consumer spending grew by a small amount in the first quarter of 2018 (1.1%, down from the previous quarter’s 4%). Business investment grew more significantly at a rate of 6.1%, which is slightly higher than the average post Great Recession rate of 5%. Employment rates have been in flux, but have continued to grow at an average rate of around 188,000 per month.
It’s difficult to see whether or not any of these numbers have yet been affected by the Tax Cuts and Jobs Act. As with any change in tax law, affects of the tax code tend to be seen more easily over longer stretches in time. So, for the time being, it doesn’t appear that the TCJA has had an immediate effect on the economy. As for the future, we’ll have to wait to analyze long term data to see the full effects of the tax code changes.