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The Great Tax Cut Story

President Trump had a well-received State of the Union Address last evening, with a CBS poll showing that 72 percent of viewers approved of the speech, and a CNN poll showing 76 percent approved.

It was somewhat jarring to see a portion of the attendees withholding their applause as the president ran through the excellent economic numbers the country is experiencing right now. Don’t they want a strong economy? These numbers are impressive not only in contrast with those of the previous administration, but especially in comparison to most other countries, which are experiencing slower growth, chronic unemployment, and even larger relative debt burdens.

We assert that the 2017 tax reform/tax cut pushed by the Trump administration and passed by a Republican Congress is the primary factor behind this strong economy, and a recent Congressional Budget Office (CBO) report provides the details, as recounted in Investor’s Business Daily.

Among other duties, the CBO creates a baseline economic projection going out several years based on current policies. In January 2017 (before Trump became president), CBO predicted 2 percent growth in 2018, 1.7 percent in 2019, and 1.5 percent in 2020. Those projections were based on Obama administration policy, and were generally in line with other projections.

Then came tax reform, along with deregulation efforts and an expansion in the energy sector. The economy picked up, growing at 3 percent in 2018, and CBO now expects 2019 economic growth of 2.7 percent.

In other words, tax reform improved economic growth above CBO expectations, and now CBO has increased its growth expectations for the future.

The difference between 2 percent and 3 percent growth in an economy the size of the U.S. is significant. That’s why 2018’s unemployment rate was 3.9 percent instead of CBO’s expected 4.4 percent.

Based on Obama administration policies, CBO expected a 2018 job creation number of 94,000 new jobs per month. But the actual, post-tax reform number was 203,000 new jobs per month—more than double. Even workers on disability are reentering the work force.

Tax reform is working—but we have to keep telling the story.

One final nugget: According to CBO, because the tax cuts stimulated economic growth, federal revenue is higher than projected. CBO calculates that the tax cuts generated enough new revenue feedback to pay for 20 percent of the tax cut.

CBO projections always overstate the cost of pro-growth tax cuts because they ignore the pro-growth effects on revenue. But tax cuts that encourage investment can partly pay for themselves, just as supply-siders have always claimed.

Which means even the new CBO projections are probably STILL underestimating the benefits of the 2017 tax cuts.