Top Trump economist: Tax cuts powering economy despite global slowdown

The top White House economist on Tuesday said President Trump’s efforts to cut taxes and regulations will help power the U.S. economy through a broader global slowdown.

Kevin Hassett, chairman of the White House Council of Economic Advisers (CEA), told reporters Tuesday that the 2017 tax-cut bill had created “a fundamental shift” in the economy that would bring years of strong growth and job gains.

“There’s ample room for optimism,” Hassett said during a Tuesday conference call to discuss the CEA’s 2019 economic report to the president.

“We’re pretty confident that the momentum that we’re carrying into this year will continue.”

{mosads}U.S. gross domestic product (GDP) grew 2.9 percent in 2018 and 3.1 percent between the fourth quarters of 2018 and 2017. The annualized level was just short of Trump’s 3 percent goal but several notches higher than most public and private sector projections.

The Congressional Budget Office (CBO), Federal Reserve and a slew of private sector economists had projected GDP to rise closer to 2.5 to 2.7 percent.

Hassett attributed the increase to higher levels of business spending, infrastructure investment and purchases of capital equipment, which he said would boost the U.S. economy even as Europe and China appear close to recessions.

“The idea that we would have a recession next year, it’s certainly not impossible,” Hassett said of a potential U.S slowdown. “But it would be very unusual for such a thing to happen given the massive amount of capital spending.”

The CEA argued in its 2019 report that the tax-cut bill and rollbacks of financial and environmental regulations turbocharged U.S. growth to levels that exceeded all but the White House’s expectations.

“The strong economic performance in 2017 and 2018 was not merely a continuation of trends already under way during the postrecession expansion,” the report reads, “but rather constituted a distinct break from the previous pace of economic and employment growth since the start of the current expansion.”

Critics of the Trump administration and the tax bill instead credit policies enacted by former President Obama for the strong economy, likening the tax bill to little more than a sugar rush. 

Business investment in machines, tools and other productivity-boosting equipment reached $300 billion in 2018, $26.4 billion more than the pre-2017 trend, according to CEA. The U.S. added 215,000 machine manufacturing jobs in 2018, which CEA said was 301,000 more jobs than the pre-2017 trend.

The CEA also cited higher levels of commercial and industrial loans held by banks since Trump signed a bipartisan bill to loosen post-crisis lending restrictions, capital requirements and other stability mandates.  

“We actually cut taxes to encourage people to build new factories.  And we had new factories last year,” Hassett said. “We’re going to get more new factories this year, but we’re also going to get the output from the factories we built last year as they turn them on.”