George Boardman: Trump’s great economy? Depends on where you are on the food chain
Donald Trump believes the success of the U.S. economy during his presidency is one of the main reasons he will get reelected next year, but a clear accounting of who has really benefited could turn that strength into an albatross.
Employing his usual bombast, Trump has proclaimed the economic gains since he became president “the greatest economic expansion in history,” and another reason why there is no way he will be impeached.
His argument looks strong if you don’t dig too far below the surface. Unemployment is near an all-time low for whites as well as blacks and other minorities, and anybody who wants to work can find a job. The stock market continues to test all-time highs and business profits are strong.
Trump predicted all of this would happen when he ran for president, slamming the “pathetic” 2% annual economic growth during the Obama administration, and promising economic growth of more than 3% a year — specifically 3.5%, even 4% — thanks to tax cuts and regulatory reform. The tax cuts would pay for themselves, he said, thanks to turbocharged economic growth.
But when you start digging below the surface, you find the economic gains have largely accrued to the fortunate few who can afford the dues at Mar a Lago or the price of admission to the Trump fundraiser in Portola Valley last week. If you are among the middle class or the down-trodden blue collar workers who are said to constitute Trump’s political base, you’re right back where you were in 1999.
First, there’s the rate of economic growth. Instead of the 3.5% or 4% promised by Trump, the gross domestic product grew 2.4% in 2017 and 2.9% last year, according to the Commerce Department. Growth managed to exceed 3% in both the second and third quarters of 2018, but the sugar high from the Trump tax cuts was short lived. Economic growth for this year is projected at 1.8%.
As for the tax cuts paying for themselves: Well, no. The revenue generated by the tax cuts is nowhere near the money lost by the government when the cuts went into effect. As a result, the U.S. will have a deficit of over $1 trillion this year, and for several years into the future.
When the tax act was signed by Trump in December 2017, several businesses made a big show of granting workers bonuses, just a small part of the bounty that would soon be coming their way. But as income data released recently by the Census Bureau shows, that money flowed elsewhere.
Census data showed the median U.S. household had income of $63,179 last year, a little more than the $62,600, adjusted for inflation, the median household made in 2017. But the 2018 figures were basically even with what the adjusted data show for 1999.
Income growth over the last decade hasn’t been as strong as economists expected given the tightness of the U.S. labor market. Part of the reason is that employers have become more adept at holding down wages by using technology, and consolidation in industries such as telecommunications and banking also has dampened income growth. The share of workers in unions, which push for pay raises and force non-union businesses to raise wages to remain competitive, continues to decline steadily.
The lack of growth in the median household income since 1999 is even more striking when you consider the U.S. economy grew by 48% over the same period. Care to guess who captured most of that economic gain?
The answer, of course, is the already wealthy who benefited greatly from the Trump tax cuts. The top 20% accounted for 52% of household income last year, compared with 49.4% in 1999. A similar dynamic is going on with wealth; Federal Reserve data show a growing share of U.S. net worth accruing to the rich.
There is a heated debate over where income and wealth inequality stem from, with factors including globalization, the collapse of unions, changes in tax policy and rising demand for high-skilled over lower-skilled workers all seen as potential drivers.
What we do know is that the trickle-down theory is a myth. According to Trump and others who pushed his tax cuts, businesses would use the money saved to expand their businesses. Business investment got a big boost in the first two quarters of 2018, but has faded since then. In the second quarter of this year, investment grew at an annual rate of 0.6%, the worst since 2015.
So what did businesses do with the money they saved from the Trump tax cuts? Well, dividends were increased and stock buy-backs hit a record of $1.1 trillion in 2018. While some of that money flowed into pension funds and IRAs, most of it ended up in the accounts of the wealthiest 20%.
All of this can be solid ammunition for the Democratic challenger to Trump in next year’s general election, but the leading candidates for the nomination seem to be focused on flashy — but expensive and simplistic — solutions to the dilemma of how we share prosperity.
They should be focused on who the Trump tax cuts and economy have left in the dust. That would set off a Twitter hurricane.
George Boardman lives at Lake of the Pines. His column is published Mondays by The Union. Write to him at email@example.com.
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