More Americans have been getting back to work and staying employed in 2018, according to statistics released by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS).
In April, the national unemployment rate fell to 3.9 percent, matching rates last seen in December 2000. For the week ending May 5, approximately 211,000 individuals filed for unemployment benefits for the first time, according to BLS data. There were 215,040 initial claims in the comparable week in 2017.
The positive trends have been occurring since President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law in December 2017.
The tax reform reduced most individuals’ income tax rates, permanently cut the corporate income tax from 35 percent to 21 percent, ended the taxation of U.S.-based businesses’ profits earned in other countries, and reduced the overall tax burden by about $1.5 trillion.
Improved Environment for Growth
John Tatom, a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says there are several indicators economic prosperity is growing.
“We have reached high-employment conditions over the past year, achieving an unemployment rate that was last seen over a decade ago,” Tatom said. “In December 2006, prior to the Great Recession, the unemployment rate had fallen to 4.4 percent. Over the past year, the unemployment rate has been the same or lower than this.”
Poor economic policies were inhibiting growth in the past, Tatom says, but those anchors have been lifted, speeding the recovery process.
“The recovery and expansion in the economy have been the slowest in 70 years, because of unfavorable economic policies, but even a slow expansion of employment will eventually restore high-employment conditions, if it exceeds the labor force growth rate and it lasts long enough.”
David Barnes, policy director at Generation Opportunity, says the new tax law is benefitting business owners and workers alike.
“It’s great when the economy is roaring and growing,” Barnes said. “People are pursued by other employers, and they are looking to leave because there is a better opportunity for them to move into a role where they will create benefits for society and customers so they can be paid more. As unemployment decreases, job creation increases and jobless claims decrease. These are good signs that there are fewer businesses closing.”
Tatom says people are becoming incentivized to work hard again.
“Deregulation and tax cuts reverse some of the disincentives for work built up over the over the past nine years,” Tatom said. “Lower personal income tax rates raise the after-tax wage for potential workers, providing an increased incentive for individuals to enter the labor force.”
Investment Effects Explained
Barnes says TCJA’s corporate tax reforms are responsible for much of the good news.
“Trump’s tax package included big reductions in the corporate tax rate, because the U.S. had the highest corporate tax rate in the developed world,” Barnes said. “Now we are on the lower end. Businesses won’t grow if most of those profits are eaten away by taxes. Having a lower, competitive rate means fewer businesses are incorporating in other countries.
“Shipping production activities, intellectual property, and capital overseas is a thing we’ll see less of, moving forward,” Barnes said. “Businesses are looking at the long term. They will see these permanent rates to reinvest in, and spend more money on people. That is great news for workers.”