Americans might really like the Trump tax cuts. What will Democrats do then?
Democrats are giddy about their chances in 2018. The congressional GOP is very unpopular. President Trump is wildly unpopular. And the big tax bill — the single significant thing Republicans are going to accomplish by the midterms — well, people kind of hate that, too. Public opposition to the massive tax overhaul only seems to be growing — even as it passed the House and Senate, and now heads to the House for one last perfunctory vote before going to President Trump's desk to be signed into law.
But often in politics, it is far better to be lucky than good (especially when you are not that good at politics and do things like promise to repeal ObamaCare and then don't). And the U.S. economy may be about to do the GOP a massive favor.
Economic growth has shifted into a higher gear. In 2016, the economy grew by just 1.5 percent, adjusted for inflation. But the past two quarters of this year have seen growth twice as fast. What's more, the New York Fed's real-time "Nowcast" model is currently forecasting 4 percent growth for the final three months of 2017 and over 3 percent growth for the first three months of 2018. Americans haven't seen such strong and sustained GDP growth since 2004.
But that's not all. If the economy keeps growing at even a modest pace, the already tight labor market will get even tighter. The unemployment rate, down 0.7 percentage points since the start of the year to 4.1 percent, may be well under that level by Election Day 2018. And don't be surprised if wage growth accelerates, too, as companies scramble to hire workers. And even if wage growth stays steady, that's not so bad given low inflation.
Democrats have a response at the ready to explain this boomlet: "Thanks, Obama." And it's true, all these positive trends began during Barack Obama's presidency. But Republicans also have a story to tell: "Thank you, Trump tax cuts." GOPers will credit corporate America's anticipation of the Trump economic agenda for igniting faster growth and then actual passage of the tax bill for its continuation.
Many voters might just believe the GOP line given that the upturn is happening at the same time their taxes are being cut. Correlation is good enough to assume causality for most of us. Politicians are typically given credit for what happens on their watch, no matter what experts say.
Meanwhile, Democrats have been slow to concede that corporations and the rich will not be the only groups benefiting from the tax plan. Only 5 percent of taxpayers would pay more tax in 2018, notes the Tax Policy Center, with the middle 60 percent of taxpayers seeing a roughly 1.6 percent increase in after-tax income. Nor are many Democrats entertaining the possibility that tax cuts might actually modestly boost growth, with some of those gains nudging wages higher. At least in the near term, the GOP tax cuts might appear an economic success and grow in popularity, improving the GOP's election chances in the process.
And what is the Democratic counter? Sure, they could argue that the GOP's individual tax cuts are temporary. But Republicans would love that. House Speaker Paul Ryan has already said those cuts will never expire and dared Democrats to promise otherwise. Or maybe Democrats could make an argument about rising budget deficits or rising wealth inequality. But those are pretty abstract claims to compete against greater take-home pay.
Of course, the economy might sink back into slow-growth mode. And even if it does not, maybe President Trump's behavior will make pocketbook issues irrelevant to enough voters to give Democrats a big political boost anyway. But Democrats have another problem. Not only did they argue that Trump was unfit for office because of his miserable character, they also argued his incompetence would ruin America. But Trump hasn't nuked Pyongyang nor disbanded NATO. And the economy is motoring right along. As Richard Nixon supposedly said, "It would take a genius" to wreck the American economy. Despite Trump's claim to possess a "very good brain," he probably doesn't qualify as a genius. He and the congressional GOP are just politicians who are lucky enough to be facing election at a good time in the up-and-down business cycle. And another year of more growth and more jobs might be enough to keep them in control of Washington.