Voter perceptions about the strength of the economy will go a long way to determining how the midterm elections go in November.
Republicans are counting on being rewarded for a strong economy, while Democrats will attempt to use class warfare as their counterargument. You can almost hear, “Tax cuts for the rich” being repeated like a broken record this fall by Democratic candidates on the stump.
But the facts are beginning to break through. President Trump and Capitol Hill Republicans unified to pass the most sweeping tax reform law in a generation late last year and that law is beginning to make a difference.
Politically, the fight over the bold tax package represented both sides taking their chips and pushing them to the middle of the poker table.
Given the $1.5 trillion cost of the tax reform bill, Republicans were taking a risk. If the tax reform law did not lead to higher wages, greater investment and increased hiring, then Republicans would pay the price for passing an expensive tax reform law that would bring in less government revenue (and cause higher deficits) in the short term.
With about one financial quarter behind us, how is the tax reform law performing?
Here are a few recent developments:
— More money for consumers: Real disposable income (earnings adjusted for taxes and inflation) rose in January by 0.6 percent, the largest amount since April 2015. According to the Commerce Department, this reflected a $30 billion increase in one-time bonuses and a $115.5 billion drop in personal taxes on an annualized basis.
— Strong monthly job growth: In February, the U.S. added 313,000 jobs, the Labor Department reported, surpassing expectations and easily outpacing population growth. In 2017, the national monthly job increase was 182,000. In the first two months of 2018, the average is 276,000, indicating that job hiring is on a more positive trend.
— More people working than ever before: The proportion of Americans in the prime working years (25 to 54) who are currently working is at the highest it has been since 2008.
— Wages are rising: Average hourly earnings rose 2.9 percent in January, with a slightly lower increase of 2.6 percent in February. Wages have been stagnant for decades, which has contributed to the broadly felt middle-class economic anxiety. That is starting to change. The U.S. unemployment rate was at 4.1 percent in February, a level below anything the country has seen in the past decade.
— Consumer confidence is booming: Consumer sentiment, which is tracked by the University of Michigan, jumped in March to a 14-year high.
Also in March, the NFIB Small Business Economic Trends Survey optimism index hit a record high.
— Two million are off food stamps: In Mr. Trump’s first year, the Agriculture Department estimates than an average of 42.2 million Americans participated in the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. This is a six-year low and represent an 11 percent decrease since 2013, when a record number of Americans were in the program in the wake of the Great Recession.
What does it all add up to?
“There is no sign that the rebound will end anytime soon,” the New York Times’ Ben Casselman wrote recently. “Unemployment is low, job creation is strong and the overall economy seems to be gaining momentum, not losing it. Most economists expect the expansion to continue well into next year, which would make it the longest ever. Many think it could last for years, raising the possibility that President Trump could run for re-election amid the most sustained economic growth in a generation.”
Even the prospect of higher interest rates — the Federal Reserve announced another quarter-point rate hike Wednesday — hasn’t dampened the optimism.
Together, Mr. Trump and Capitol Hill Republicans have been laser-focused on the economy, using the Congressional Review Act in the early days of the new administration to remove regulation, slashing Obama-era rules through the executive agencies to reduce the cost of business across a range of industries, and passing the most sweeping tax reform law in 31 years in December.
Republicans should run on the economy this fall. Millions of Americans have received bonuses and raises, and hundreds of billions of dollars in new investment have been announced since the tax bill was signed into law.
Mr. Trump and Republicans have a good story to tell on the economy. Every day they spend talking about anything else is a day they have wasted.
Matt Mackowiak is the Travis County GOP chairman and president of Austin, Texas, and Washington, D.C.-based Potomac Strategy Group. He’s a Republican consultant, a Bush administration and Bush-Cheney reelection campaign veteran and former press secretary to two U.S. senators.