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What is this issue all about?
Congress passed the largest piece of tax reform legislation in more than three decades in 2017. The bill went into place on January 1, 2018, which means that it affected the taxes of most taxpayers for the 2019 tax year. After intense congressional and administrative debate, this resulted in the super-rich paying much less whereas the average American pays the same, seeing very little benefit. These tax cuts had a huge impact on increasing the national debt.
Before COVID: Data shows a mixed picture in terms of whether the economy is any better than it was in 2016. The economy is growing at about the same pace for the past several years and the lower unemployment trend has continued. The American worker’s pay has been growing more than 3 percent a year, a level not seen since before the Great Recession. Similarly, consumer and business confidence has remained high, and manufacturing output, and jobs, also saw a noticeable jump in 2018 after the tax cut. However, Government debt and the trade deficit are climbing dramatically and business investment is faltering as corporate leaders say they are wary of trade wars. Consumers are paying more for many items. Tariffs could cost U.S. families up to $1,000 a year, JPMorgan forecasts
After COVID: In just a few months, the COVID-19 pandemic has decimated the U.S. economy. Governors ordered nonessential businesses to shut down to stop the spread of the COVID-19 pandemic. As a result, the GDP growth rate could fall as much as 50%. That’s about the depth experienced during the Great Depression, but it shouldn’t last as long. Unemployment could be as high as 30%.
Deduction for personal exemptions suspended Standard deductions doubled
- For 2018, taxpayers cannot claim a personal exemption deduction for themselves, their spouse or dependents. This means that taxpayers will not be able to reduce income subject to tax by an exemption amount for each person included on their tax return as they have in previous years. However, the standard deduction is a dollar amount that reduces the income on which a taxpayer is taxed. It varies by filing status. The Tax Cuts and Jobs Act nearly doubled standard deductions. The result is an offset generally equal to what taxpayers were paying before.
- Itemized deductions modified or discontinued
- Deduction for state and local income, sales and property taxes decreased. A taxpayer’s deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). Anything above this amount is not deductible.
- Deduction for home equity interest modified. Interest paid on most home equity loans is not deductible unless the interest is paid on loan proceeds used to buy, build or substantially improve a main home or second home.
- Deduction for casualty and theft losses modified. A taxpayer’s net personal casualty and theft losses must now be attributable to a federally declared disaster to be deductible.
- Miscellaneous itemized deductions suspended.
- The deduction for moving expenses is suspended.
- No tax penalty for not having health insurance.
- The biggest change includes a reduction in the top corporate rate to 21%, a new 20% deduction for incomes from certain type of “pass-through” entities (partnerships, S Corps, sole proprietorships), limits on expensing of interest from borrowing, almost doubling of the amount small businesses can expense from the 2017 Section 179 amount of $510,000 to $1,000,000, and eliminates the corporate alternative minimum tax (AMT). The result is a big tax reduction for Businesses.
- The Tax Cuts and Jobs Act changed some laws regarding depreciation and expensing that can affect a business’s tax situation. Businesses can immediately expense more under the new law. There is a temporary 100 percent expensing for certain business assets. The result is a big tax reduction for Businesses
- Job gains. The economy has steadily added around 200,000 jobs per month since President Obama’s second term. The U.S. economy typically added more than 250,000 jobs each month in 2014 (the largest increase per year in the last 10 years) and 227,000 a month in 2015. In the last 4 years, the largest increase was 223,000 in 2018 and job growth has largely matched its pace under Obama, fueled by a strong economy. But economists say that the president’s ongoing trade disputes with China and other major economies are taking a bite out of the jobs market and the broader economy.
- Unemployment rate. Unemployment shot up dramatically during the financial crisis at the end of George W. Bush’s and the start of Barack Obama’s terms before steadily dropping for most of the decade. The nation’s unemployment rate is at a half-century low. The unemployment rate has been falling steadily since 2011. In 2016 Unemployment was 4.7% and in 2019 it was 3.9%. The Federal Reserve estimates the natural rate of unemployment to range from 4.5% to 5%, which fiscal and monetary policymakers use to project full employment.
- Growth. The economy has been growing for a decade and looks similar today as it did in 2016, growing 1.6% in 2016 and 2.1% in 2019. However, tax cuts and a deregulatory push appears to be fading as business owners grow concerned about the trade war pushing growth from 2.9% in 2018 to 2.1% in 2019. Overall economic growth, as measured by quarterly GDP growth rates, has been steady.
- Wages. Wages tend to rise when unemployment is low and hiring is strong – and that employers are willing to pay more to attract workers. Average hourly pay has climbed and is now growing more than 3 percent a year for the first time in more than a decade before slowing down again. The GOP tax cuts may have boosted it, but economists also point to the tight labor market as a factor leading businesses to increase salaries to lure workers and fill open jobs.
- Stock market. The stock market hit its bottom in March 2009 and has been mostly increasing ever since, although Trump’s first term has seen a lot of volatility amid uncertainty around his trade disputes with other countries and concern that the economy may be slowing. The Dow Jones industrial average was up 46 percent at this point in Obama’s presidency vs. 25 percent for Trump.
- Federal debt and deficit. The federal debt is the amount of money the federal government owes. In 2016 Federal Debt was 76.4 trillion but it has since jumped up again under Trump because of his tax cut and increased government spending, to 79.5 Trillion. The federal deficit is the shortfall between federal revenue and how much the government spends in a fiscal year. When the economy is healthy, the federal deficit is expected to shrink since the government pulls back on spending and has more space to raise taxes. The Congressional Budget Office projected the tax cuts will add $1.9 trillion to the deficit over the next decade.
- Trade deficit. Purchasing more from overseas than the United States is a situation known as a trade deficit. The trade deficit declined during the Great Recession but has since expanded. Despite the president’s aggressive trade moves, the total monthly trade deficit in goods and services — that is, the value of goods and services exported by the US minus the value of imports — has gotten larger in the last couple of years. Last year, the trade deficit stood at $891 billion, according to the Bureau of Economic Analysis.
- Job gains. Job gains were up 2.7 M in May. Record jobs gain of 4.8 million in June. The June total is easily the largest single-month gain in U.S. history. However, the net result, with March down 1.4 M and April down 20.8 M is a net decrease of 14.3 M.
- Unemployment rate. The unemployment rate will average 9.3% in 2020. That’s much higher than the Fed’s 6.7% target. The rate peaked at 14.7% in April 2020. More than 20 million workers were let go from their jobs in response to the pandemic. In June the unemployment rate fell to 11.1%.
- Growth. U.S. GDP growth will contract by 6.5% in 2020. The GDP growth rate could fall as much as 50%.
- Wages: The National Minimum Wage and modern award minimum wages will increase by 1.75% in 2020.
- Stock market. The Dow Jones Industrial Average crashed on March 9, 2020, accurately forecasting the 2020 recession.8 In July 2020, S&P Dow Jones Indices announced that indicated dividend net changes (increases less decreases) for U.S. domestic common stocks declined $42.5 billion during Q2 2020 compared to a gain of $8.4 billion in Q2 2019. The decline was the worst since the $43.8 billion decline of Q1 2009 and comes after a $5.5 billion decline in Q1 2020.
- Federal debt and deficit:. The federal debt is the amount of money the federal government owes. In June 2020, the public debt of the United States was around 26.48 trillion U.S. dollars, over 4.45 trillion more than a year earlier, when it was around 22.02 trillion U.S. dollars. The federal deficit is the shortfall between federal revenue and how much the government spends in a fiscal year. The cumulative deficit through the first nine months of FY20 was $1,997 billion larger than it was through the first nine months of FY19. The increase in the cumulative deficit reflects a $1,648 billion increase in outlays and a $349 billion decrease in revenues.
- Trade deficit: The United States has purchased more from overseas than it has sold abroad for years, a situation known as a trade deficit. The average goods and services deficit increased $2.5 billion to $42.1 billion for the three months ending in April 2020. Average exports decreased $19.7 billion to $184.4 billion in April 2020. Average imports decreased $17.3 billion to $226.5 billion in April 2020. Year-over-year, the average goods, and services deficit decreased $6.3 billion from the three months ending in April 2019. Average exports decreased $26.7 billion from April 2019. Average imports decreased $33.0 billion from April 2019.
Facts and Resources:
Tax Reform Basics for Individuals and Families
Be Tax Ready – understanding tax reform changes affecting individuals and families. 2017 changes
FS-2019-2, February 2019
The Tax Cuts and Jobs Act (TCJA), enacted in late 2017, produced the most sweeping tax law change in more than 30 years. The TCJA, often referred to as tax reform, affects nearly every taxpayer — and the 2018 federal return they’ll file in 2019.
For taxpayers preparing to file their 2018 tax return or getting ready to meet with their tax professional, understanding the changes from the Tax Cuts and Jobs Act can help them “Be Tax Ready.” More information is available in IRS Publication 5307, Tax Reform Basics for Individuals and Families.
Federal income tax withholding changes
The Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income. The IRS issued new 2018 withholding tables last year to reflect these changes. Since taxpayers need to pay most of their tax during the year, as income is earned or received, the tables show payroll service providers and employers how much tax to withhold from employee paychecks.
In addition to lowering the tax rates, other changes in the law that affect taxpayers and their families include suspending personal exemptions, increasing the standard deduction, increasing the child tax credit, and limiting or discontinuing certain deductions.
Deduction for personal exemptions suspended
For 2018, taxpayers can’t claim a personal exemption deduction for themselves, their spouse or dependents. This means that taxpayers will not be able to reduce income subject to tax by an exemption amount for each person included on their tax return as they have in previous years. However, changes to the standard deduction amount and child tax credit may offset at least part of this change for most families and, in some cases, may result in a larger refund.
Standard deduction nearly doubled
The standard deduction is a dollar amount that reduces the income on which a taxpayer is taxed. It varies by filing status. The Tax Cuts and Jobs Act nearly doubled standard deductions.
The amounts are higher for taxpayers who are blind or at least age 65.
Itemized deductions modified or discontinued
Almost everyone who usually itemizes deductions filing Schedule A, Itemized Deductions, is affected by changes from the Tax Cuts and Jobs Act. Many individuals who itemized last year may now find it more beneficial to take the now higher standard deduction – and may have a simpler time filing their taxes.
Deduction for state and local income, sales and property taxes modified. A taxpayer’s deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). Anything above this amount is not deductible. Many states have state income tax along with property tax. This change was expensive for many citizens who could no longer deduct the full amount of tax they paid to their state.
Deduction for home equity interest modified. Interest paid on most home equity loans is not deductible unless the interest is paid on loan proceeds used to buy, build or substantially improve a main home or second home. For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not.
Deduction for casualty and theft losses modified. A taxpayer’s net personal casualty and theft losses must now be attributable to a federally declared disaster to be deductible.
Miscellaneous itemized deductions suspended. Previously, when a taxpayer itemized, they could deduct the amount of their miscellaneous itemized deductions that exceeded 2 percent of their adjusted gross income. These expenses are no longer deductible. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel. It also includes deductions for tax preparation fees and investment expenses.
Benefits for dependents expanded or changed
Child tax credit and additional child tax credit. More families with children under 17 now qualify for a larger child tax credit. For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. In addition, the income threshold at which the child tax credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Beginning with tax year 2018, a child must have a Social Security number issued by the Social Security Administration before the due date of the tax return (including extensions) to be claimed as a qualifying child for the child tax credit or additional child tax credit. Children with an Individual Tax Identification Number can’t be claimed for either credit.
Credit for other dependents. A new credit of up to $500 is available for qualifying dependents other than children who can be claimed for the child tax credit. This means that a taxpayer may be able to claim this credit for children age 17 or over, including college students, children with ITINs, or other older relatives in the household. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. The credit is calculated with the child tax credit in the form instructions. The total of both credits is subject to a single phase-out when adjusted gross income exceeds $200,000 ($400,000 if married filing jointly).
See 2018 Publication 972, Child Tax Credit, for more information.
Deduction and exclusion for moving expenses suspended
The deduction for moving expenses is suspended. During the suspension, no deduction is allowed for use of an automobile as part of a move. Also, employers will include moving expense reimbursements as taxable income in the employees’ wages because the new law suspends the former exclusion from income for qualified moving expense reimbursements from an employer. These changes do not apply to members of the U.S. Armed Forces on active duty.
Alternative minimum tax (AMT) exemption amount increased
The AMT exemption amount is increased to $70,300 ($109,400 if married filing jointly or qualifying widow(er); $54,700 if married filing separately). The income level at which the AMT exemption begins to phase out has increased to $500,000 ($1 million if married filing jointly). See the 2018 Instructions for Form 6251, Alternative Minimum Tax – Individuals for more information.
Changes affecting small business taxpayers
Qualified business income deduction
Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20 percent of their qualified business income. The new deduction — referred to as the Section 199A deduction or the qualified business income deduction — is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 tax return they file in 2019. A set of FAQs provides more information on the deduction, income and other limitations.
Changes to depreciation and expensing for businesses
The Tax Cuts and Jobs Act changed some laws regarding depreciation and expensing that can affect a business’s tax situation. Businesses can immediately expense more under the new law. There is a temporary 100 percent expensing for certain business assets. There are also changes to depreciation limitations on luxury automobiles and personal use property. More details are in FS-2018-9, New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act.
Publication 5318, Tax Reform: What’s New for Your Business, provides information about changes to deductions, depreciation, expensing, credits, fringe benefits and other items that may affect businesses
2019 Tax Changes
What the New December 2019 Tax Law Changes Mean for You
A new law signed in late 2019 includes many changes that may affect your 2019 tax return, due to the Internal Revenue Service (IRS) by April 15. These changes are separate from the big 2017 tax law changes that went into effect last year.
New Law Extends Tax Breaks for Many
The Further Consolidated Appropriations Act, 2020, was signed into law on December 20, 2019. It includes provisions from two acts:
- Setting Every Community Up for Retirement Enhancement (SECURE) Act
- This act makes important changes to retirement savings plans. For example, it changes the age at which you must start taking distributions from 70 ½ to 72.
- Learn about more SECURE Act changes to retirement and education savings plans.
- Taxpayer Certainty and Disaster Tax Relief Act of 2019
- This act reauthorizes many tax credits and deductions for tax years 2018 – 2020 that had expired at the end of 2017. These include deductions for tuition and fees and for mortgage insurance premiums.
Other changes in the new law include:
- Reduction in the medical expense deduction floor
- Energy-efficient homes credit
- Employer credit for paid family and medical leave
- Work opportunity credit
- Special rule for determining earned income
- Repeal of maximum age for traditional IRA contributions
- Expansion of Section 529 plans
For the complete list of affected tax law provisions see the Joint Committee on Taxation List of Expiring Tax Provisions 2020.
These tax breaks are retroactive; you can go back and amend your 2018 tax return to claim them for that tax year.
Tax Reform Impact: What You Should Know For 2019
Updated for Tax Year 2019
Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2019 tax year.
That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.
Lower Tax Rates and Changed Income Ranges
The bill retains the seven tax brackets found in current law, but lowers a number of the tax rates. It also changes the income thresholds at which the rates apply.
- The brackets before tax reform were: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%
- The 2019 brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%
The income thresholds at which these brackets kick in have changed, as well.
The biggest tax cut went to people earning MORE THEN TWICE AND THREE TIMES the real median income of households in the United States.
The biggest reduction in tax rate (4% reduction) is for those married joint filers making $153,101 and $233,350 and those single filers making $91,901 and $191,650.
Medium household income for the nation has been increasing every year since 2013, but the year-to-year increase from 2017 is smaller than the last 3 years.
Real median household income in the United States increased by 0.8% to $61,937 between 2017 and 2018.
Previous increases ranged between 1.8% and 3.3% annually. https://www.census.gov/library/stories/2019/09/us-median-household-income-up-in-2018-from-2017.html
2020 and 6/2019 Before COVID
2017 to 2020
The Trump vs. Obama economy — in 15
August 20, 2019 at 3:00 a.m. PDT
Is a recession coming in 2020 or 2021? Experts continue to debate the conflicting signals, but an equally telling question might be: How does the “Trump economy” compare to Barack Obama’s?
President Trump constantly refers to the economy with descriptors such as “strong,” “terrific” and the “greatest in the history of our country,” but a closer look at the data shows a mixed picture in terms of whether the economy is any better than it was in Obama’s final years. The economy is growing at about the same pace as it did in Obama’s last years, and unemployment, while lower under Trump, has continued a trend that began in 2011.
The best case Trump can make for improvement since he took office is higher wages. The typical American worker’s pay is finally growing more than 3 percent a year, a level not seen since before the Great Recession. Similarly, consumer and business confidence surged after Trump’s election and has remained high, and manufacturing output (and jobs) also saw a noticeable jump in 2018 after Trump’s tax cut, although manufacturing is now struggling. There’s also been a drop in the number of Americans on food stamps
But in other areas, Trump’s record does not look as rosy. Government debt and the trade deficit are climbing (while most economists don’t worry about the rising trade deficit, Trump made it a central part of his 2016 election campaign), and business investment is faltering as corporate leaders say they are wary of Trump’s trade war. The number of Americans lacking health insurance is also ticking up slightly.
As for two of Trump’s favorite metrics — stocks and jobs — there is a case to be made that those looked better under Obama, although most economists expected job gains to slow now that the economic recovery is a decade old.
Presidents have only so much control over the economy, but how voters perceive economic conditions and their personal finances can play a key role in how they vote. Lately, Republicans and many wealthy voters rate this economy as the best since the 1990s boom, while Democrats and many lower-income voters are less enthusiastic.
Here’s a look at the Trump economy vs. the Obama economy in 15 charts.
1. Job gains. The U.S. economy typically added more than 250,000 jobs each month in 2014 and 227,000 a month in 2015. Trump has not been able to top that yet, but experts say job growth remains surprisingly robust, especially given how many baby boomers are retiring and how many business owners complain they can’t find any more workers.
2. Unemployment rate. The nation’s unemployment rate is at a half-century low, a source of pride for Trump. But many economists have pointed out that the rate has been falling steadily since 2011, making it difficult to see much difference after Trump took office.
3. Growth. After a painful 2009, the economy has been growing for a decade. In the early years of the recovery, growth was lackluster, but it started to pick up in 2014 and 2015. Trump told America he could do even better as president, but his record so far looks similar to Obama’s final few years in office. While his tax cut and deregulatory push boosted growth in 2018, that appears to be fading as business owners grow concerned about the trade war.
4. Middle-class income. Most Americans saw a noticeable decline in their income during the Great Recession, and it took years for wages to recover. In 2017, a typical middle-class family finally saw their income climb above where it was in 1999. (Data for 2018 will be released in September.) Incomes have been rising steadily in recent years as more Americans get jobs.
5. Stock market. The Dow Jones industrial average was up 46 percent at this point in Obama’s presidency vs. 25 percent for Trump. Stocks soared under Obama, and he ended his White House tenure with one of the best gains of any president in modern history. Trump started out with a lot of love from Wall Street as well, especially with his tax cut, but stocks have moved sideways since he began his trade war.
6. Food stamps. About 1 out of 7 Americans received food stamps (the Supplemental Nutrition Assistance Program) in 2013 in the aftermath of the Great Recession, as people struggled to find good-paying jobs again. The numbers came down slightly under Obama, and the decline has accelerated under Trump as more Americans have obtained jobs and the requirements to remain on food stamps have tightened.
7. Manufacturing. Trump campaigned heavily on reviving blue-collar industries and jobs. While service-sector jobs in health care, technology and hospitality rebounded quickly after the Great Recession, manufacturing did not. Trump’s tax cuts helped boost manufacturing in 2018 (blue-collar job growth hit the fastest pace since the early 1980s), but the president’s tariffs have since taken a toll, sending manufacturing into a “technical recession” in 2019.
8. Home prices. The housing market was at the heart of the 2007-2008 financial crisis, and many Americans lost their homes or watched the value of their homes plummet. Home prices bounced back at the end of Obama’s term and have continued a steady climb under Trump.
9. Gas prices. Americans keep a close eye on gas prices and tend to get nervous when it climbs above $3 a gallon nationally, but for much of Obama’s second term and Trump’s first term, gas prices have remained under that key threshold.
10. Federal debt. The national debt swelled under Obama as the federal government spent money trying to rebuild the economy after the Great Recession. At the end of Obama’s term, the annual deficit had declined considerably, but it has since jumped up again under Trump because of his tax cut and increased government spending.
11. Wages. For much of Obama’s time in office, wages remained subdued, and his economic team cited lackluster wager gains as the “unfinished business” of his presidency. Under Trump, average hourly pay has climbed and is now growing more than 3 percent a year for the first time in more than a decade. There’s debate about how much credit Trump deserves for this, but his tax cuts and the jump in business optimism probably played a role. The concern is rising, however, that wage growth is stalling in 2019.
12. Consumer confidence. Confidence in the economy has jumped since Trump’s election. This is an area where there has been a clear break from Obama, although experts debate how much of a difference it has made. Normally when confidence rises, businesses and consumers spend more, but that hasn’t been the case, especially for businesses. Still, high confidence is probably playing a role in keeping the United States out of a recession, even as other parts of the world falter.
13. Trade deficit. The United States has purchased more from overseas than it has sold abroad for years, a situation known as a trade deficit. The trade deficit declined during the Great Recession but has since expanded, which is typically a sign that the U.S. economy is growing robustly. Trump campaigned on bringing the trade deficit down, but it has grown during his tenure.
14. Uninsured Americans. One of Obama’s key policy goals was to get more Americans health insurance. The number of people without health insurance fell noticeably during his tenure after the passage of the Affordable Care Act. Progress has since stalled under Trump, who attempted (unsuccessfully) to repeal Obamacare.
15. Business investment. Trump and his advisers said the goal of the GOP tax cuts was to encourage businesses to spend and invest more in new equipment and factories, which would then help boost the economy in years to come. While there was a slight bounce in business spending in early 2018, it has since plunged (even turning negative in the spring of 2019), largely because of the trade war.
2020 Before COVID
Trump boasts the US economy is the best it’s ever been under his watch. Here are 9 charts showing how it compares to the Obama and Bush presidencies. Joseph Zeballos-Roi, Andy Kiersz. Jan 21, 2020
- President Donald Trump has repeatedly pointed to the nation’s steady economic health as the strongest indicator of his success, calling it “terrific” and “the greatest in the history of the country.”
- But how does his handling of the economy compare to his immediate predecessors, Barack Obama and George W. Bush?
- Presidents receive a lot of credit when the economy is performing well and a barrage of criticism when it doesn’t, despite the fact they don’t exactly wield direct power over it.
- A closer look at the Trump economy reveals a mixed picture.
- Here are 9 charts tracking the highs and lows of the Trump, Obama, and Bush economies on key indicators like gross domestic product, unemployment, wages, and the federal debt.
- Visit Business Insider’s homepage for more stories.
President Donald Trump has repeatedly pointed to the nation’s steady economic health as the strongest indicator of his success throughout his time in
But a closer look at the Trump economy reveals a conflicting portrait – though it was certainly not in a poor state after the president’s 2017 inauguration. The unemployment rate is ticking downward, and job growth is holding steady – but Trump’s ongoing trade wars sapped business confidence. Companies have pulled back on hiring workers as a result.
Here are nine charts tracking the highs and lows of the Trump, Obama, and Bush economies on key indicators like gross domestic product, unemployment, wages, and the federal debt. As you can see, they paint a mixed picture around Trump’s bold claims.
Overall economic growth, as measured by quarterly GDP growth rates, has been steady.
Gross domestic product measures the total value of all goods and services provided by the country in a year, essentially the economic output. The ideal GDP growth rate is between 2% and 3%.
GDP growth was consistently strong during the George W. Bush administration, averaging out to 2.1% per year when adjusted for inflation, according to the Hudson Institute. But during the financial crisis, the US GDP plummeted and the economy contracted 2.5% in 2009.
The Obama administration confronted the worst economic crisis since the Great Depression when it initially took office. It passed a massive stimulus package in February 2009 to jumpstart the economy – and it was successful. The Congressional Budget Office said in a report that GDP growth was higher from 2009-2012 in part due to the legislation.
Trump has benefited from Obama’s economic stewardship, as GDP growth under his watch has consistently been between 2% to 3%. In 2018, it was 2.9%. Economic forecasters, however, project the nation’s steady GDP growth to decelerate in 2019, dragged down by trade tensions and slowing industries overseas.
Unemployment shot up dramatically during the financial crisis at the end of George W. Bush’s and the start of Barack Obama’s terms before steadily dropping for most of the decade.
The unemployment rate measures the share of the labor force that is jobless and it fluctuates depending on economic conditions. But when the economy is healthy and growing, it can be expected to decline.
The Federal Reserve estimates the natural rate of unemployment to range from 4.5% to 5%, which fiscal and monetary policymakers use to project full employment.
The unemployment rate hovered between 4% and 6% for most of the Bush presidency, spiking dramatically during the 2008-09 financial crisis to 7.8% just as he left office in January 2009.
As a result, Obama inherited an economy in free-fall. The unemployment rate peaked at 10.2% in October 2009 during the recession and 8.7 million jobs were lost from early 2007 and 2010, according to the Center for Budget and Policy Priorities. But it started falling steadily in 2011 and that trend continued for the rest of the Obama presidency.
President Trump took office as the economy continued its recovery – and as it underwent a decade-long expansion, the longest in American history. The current employment rate stood at 3.5% as of December 2019 – the lowest in a half-century.
Job growth, another key labor market measure, followed a similar pattern. The Great Recession destroyed millions of jobs per quarter, but the economy has steadily added around 200,000 jobs per month since President Obama’s second term.
Job growth is another key indicator of the economy’s health.
During the first few years of the Bush administration, the economy struggled to add jobs. A recession struck in 2001, which lasted eight months and shed jobs at that time. Then it bounced back – and its growth was steady until the 2008 financial crisis when jobs disappeared at a breakneck pace. In January 2009, 808,000 jobs were lost, the low point for this indicator during the Great Recession.
Obama tried stemming those job losses early on in his term, and the economy started stabilizing in 2010. They soon turned into gains – and he averaged out around 109,000 jobs created every month for eight years (when those massive losses at the outset of his presidency are also taken into account).
Job growth during the Trump presidency has largely matched its pace under Obama, fueled by a strong economy. But economists say that the president’s ongoing trade disputes with China and other major economies are taking a bite out of the jobs market and the broader economy.
Wage growth for non-supervisory and production workers in the private sector slowed down after the recession but mostly picked up during President Trump’s first term as the labor market has tightened.
Wages tend to rise when unemployment is low and hiring is strong – and that employers are willing to pay more to attract workers.
Wage gains were steady for much of the Bush administration, fluctuating between two and four percent each year.
Then wage growth took a hit during the financial crisis, and gains were anemic for much of the Obama presidency. The Obama economic team referred to it as “the unfinished business” of his time in the Oval Office.
During the Trump presidency, wages have climbed and its grew at more than 3 percent before slowing down again. The GOP tax cuts may have boosted it, but economists also point to the tight labor market as a factor leading businesses to increase salaries to lure workers and fill open jobs.
Some economists believe that wages should be growing faster, given record lows in unemployment. They’ve proposed some possible explanations, including declining rates of unionization that stifle the ability of workers to negotiate for better pay, lack of competition within some industries, and the outsourcing of jobs to workers paid less.
The typical household’s income fell dramatically after the recession but has recovered since Obama’s second term.
Median household income measures the average income of middle-class families.
Bush’s first term saw household’s incomes trend downward because of two economic downturns, but they swung upward until 2007 before declining steeply during the Great Recession.
The recession stretched into June 2009, according to the National Bureau of Economic Research, well into the first year of the Obama presidency. The recession dealt a blow to family incomes, which struggled to recover alongside a battered economy. However, incomes started rising in 2012.
That trend has continued during Trump’s presidency. By 2018, the average middle-class family saw their income grow to $63,179, according to the Census Bureau.
The stock market hit its bottom early in Obama’s first term and has been mostly increasing ever since, although Trump’s first term has seen a lot of volatility amid uncertainty around Trump’s trade disputes with other countries and concern that the economy may be slowing.
The S&P 500 measures the stock performance of the 500 largest corporations listed on US exchanges.
The S&P ticked upward for much of the Bush presidency but took a severe hit during the Great Recession along with the rest of the stock market.
Obama presided over the S&P’s steady recovery, which continued through the end of his presidency.
Under Trump, that recovery has swung between gains and losses, brought on a summer 2019 recession scare coupled with the uncertainty stemming from his trade war with China.
The federal deficit ballooned in the 2009 fiscal year, as the government ramped up spending and tax revenues fell in the wake of the crisis. Deficits shrank in subsequent years, but have increased under Trump.
Andy Kiersz/Business Insider
The federal deficit is the shortfall between federal revenue and how much the government spends in a fiscal year. When the economy is healthy, the federal deficit is expected to shrink since the government pulls back on spending and has more space to raise taxes.
Bush took over a strong economy from his predecessor, Bill Clinton, with a budget surplus of $128 billion in fiscal year 2001. And it was the last time the US government had a surplus on its hands. The wars in Iraq and Afghanistan, as well as a series of tax cuts, erased it and jacked up the deficit.
Obama ran massive deficits in his 2009 stimulus package to jolt the economy during the Great Recession. Then the next year, he passed an $858 billion tax cut that included an extension of the Bush tax cuts that had similarly ramped up deficits almost a decade before.
Trump has continued running massive deficits during his presidency, which only widened with the passage of the 2017 GOP tax cuts. The Congressional Budget Office projected the tax cuts will add $1.9 trillion to the deficit over the next decade. The deficit stood at $984 trillion for fiscal year 2019, and it will surpass $1 trillion next year, according to CBO projections.
As a result of those deficits, the total federal debt has increased over the last three presidents and is now over $23 trillion.
Business Insider/Andy Kiersz, data from FRED
The federal debt is the amount of money the federal government owes. And it’s been on the upswing since the start of the 21st century.
The debt increased steadily under Bush, the result of a costly war on terror and the invasions of Afghanistan and Iraq. According to the Costs of War Project at Brown University, the price tag of the post-9/11 wars totaled $5.9 trillion through the fiscal year 2019. The tax cuts he passed also played a role in piling more onto the debt – and it was nearly $10 trillion by the time he left office, double what it was at the start of his presidency.
Obama’s stimulus packages also added a substantial amount of money to the debt, though it helped put the nation back on track economically. According to Department of Treasury data and Congressional Budget Office projections, the national debt grew 84% under Obama’s watch by the end of fiscal year of 2016 – slightly more than it had under Bush at 75%.
Trump vowed to erase the debt during his presidency but instead has only added to it with the GOP tax cuts and short-term spending bills.
Trade is one of Trump’s signature issues. Despite his aggressive trade moves, the total monthly trade deficit in goods and services — that is, the value of goods and services exported by the US minus the value of imports — has gotten larger in the last couple years.
The trade balance calculates a country’s exports minus its imports in a given period. When a nation imports more goods than it exports, the result would be a trade deficit.
The Bush administration’s trade imbalance increased for much of his two terms in office, partially brought on by additional trading with China as it was integrated into global markets. Then trade decreased sharply during the Great Recession.
The trade balance fluctuated but held steady during the Obama administration. And during Trump era, the deficit started to increase to levels not seen since the Bush administration – despite him vowing to “start whittling it down, and as fast as possible” in 2017. Last year, the trade deficit stood at $891 billion, according to the Bureau of Economic Analysis.
Still, a growing deficit partially means the economy is expanding, the result of increased consumer spending that leads to more imports of good.
2020 After COVID
US Economic Outlook for 2020 and Beyond
Experts Forecast a U-Shaped Recession
BY Kimberly Amadeo. Reviewed by Janet Berry-Johnson
Updated June 10, 2020
The most critical indicator is the gross domestic product, which measures the nation’s production output.
As a result, the GDP growth rate could fall as much as 50%.1 That’s about the depth experienced during the Great Depression, but it shouldn’t last as long. Unemployment could be as high as 30%.
The NBER announced in early June that “the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”3
In April, retail sales plummeted 16.4% as governors closed nonessential businesses.4 As companies furloughed workers, the number of unemployed shot up to 23 million.5
The Congressional Budget Office predicts a modified U-shaped recovery.
These early indications reveal that the second quarter will be worse. The Congressional Budget Office predicts the economy will decline by 38%.6 The number of unemployed will rise to 26 million. The third quarter will improve, but not enough to make up for earlier losses. Effects will linger until the fourth quarter 2021, with slightly lower economic output and higher unemployment.
U.S. GDP growth will contract by 6.5% in 2020. It will rebound to a 5% growth rate in 2021 and 3.5% in 2022. That’s according to the most recent forecast released at the Federal Open Market Committee meeting on June 10, 2020.7
The unemployment rate will average 9.3% in 2020.7 That’s much higher than the Fed’s 6.7% target. It will drop to 6.5% in 2021 and 5.5% in 2022. The rate peaked at 14.7% in April 2020.8 More than 20 million workers were let go from their jobs in response to the pandemic.
The real unemployment rate includes the underemployed, the marginally attached, and discouraged workers. For that reason, it is around double the widely-reported rate. You can put this report into perspective by viewing the unemployment rates since 1929.
Inflation will average 0.8% in 2020.7 It will rise to 1.6% in 2021 and 1.7% in 2022. The core inflation rate strips out volatile gas and food prices. The Fed prefers to use that rate when setting monetary policy. The core inflation rate will average 1.0% in 2020, 1.5% in 2021, and 1.7% as well in 2022. The core rate well below the Fed’s 2% target inflation rate. The U.S. inflation rate history and forecast helps predict the coming years’ inflation levels.
On March 15, 2020, the Federal Open Market Committee held a special meeting to cushion the economic impact of the COVID-19 coronavirus outbreak. It lowered the current fed funds rate to a range between 0.0% and 0.25%.9 That’s after lowering it to a range of between 1.0% and 1.25% on March 3.10
The fed funds rate controls short-term interest rates. These include banks’ prime rate, the Libor, most adjustable-rate loans, and credit card rates. You can protect yourself from any rate hikes by choosing fixed-rate loans wherever possible.
The Fed is also working on keeping long-term rates low. It restarted its quantitative easing program. On March 15, 2020, the Federal Reserve announced it would purchase $500 billion in U.S. Treasurys and $200 billion in mortgage-backed securities over the next several months. On March 23, 2020, the FOMC expanded QE purchases to an unlimited amount. By May 18, its balance sheet had grown to $7 trillion.
By buying bank securities, the Fed reduces supply in the Treasurys market. That increases the prices and lowers the return, or yield, on these long-term notes. Those yields set the benchmark for fixed-rate mortgages and corporate bonds.
Treasury yields also depend on the demand for the dollar. Demand is high, so that also puts downward pressure on yields will drop. Once the global economy recovers, investors will demand less of this ultra-safe investment.
Oil and Gas Prices
The U.S. Energy Information Administration provides an outlook on oil and gas prices from 2020 to 2050. It predicts crude oil prices will average $34 a barrel in 2020 and $48/b in 2021.11 That’s for Brent global. West Texas Crude will average around $4/b less.12
The EIA’s energy outlook through 2050 predicts rising oil prices. By 2025, the average Brent oil price will increase to $79/b.13 This is a quote in 2019 dollars, which removes the effect of inflation. After that, world demand will drive oil prices to the equivalent of $214/b in 2050. By then, the cheap sources of oil will have been exhausted, making crude oil production more expensive.
The Bureau of Labor Statistics publishes an occupational outlook each decade. It goes into great detail about each industry and occupation. Overall, the BLS expects total employment to increase by 8.9 million jobs between 2018 and 2028.14
The BLS forecast does not take into account the effects of the COVID-19 pandemic.
Health care occupations will account for 18 of the 30 fastest-growing occupations.14 One reason for that is the aging of the population. Computer and math occupations, and those based on alternative energy production, will also grow rapidly.
Three occupational groups will lose jobs.14 These include production, administrative support, and sales. These jobs are being replaced by computer and technological solutions. Retail sales will also lose jobs, as e-commerce continues to predominate. That shift will also increase jobs in transportation and warehousing.
The Federal Reserve is concerned about how climate change is affecting the economy.15 Research from the Richmond Fed estimated that it will reduce U.S. economic growth by 30% over the next century.
Damage from natural disasters, such as hurricanes, floods, and wildfires, was $150 billion in 2019.16 That’s lower than the record $350 billion set in 2017, and the $186 billion in 2018. These disasters killed 9,000 people in 2019 and 15,000 people in 2018. Insurance companies paid out $52 billion in 2019 damage claims and $86 billion in 2018. The industry is frustrated by the lack of action on global warming solutions.
These have become worse and more frequent due to global warming. There were 820 natural disasters in 2019, compared to only 520 a year between 1989 and 2018.
S&P Dow Jones Indices Reports $42.5 Billion Decrease in U.S. Indicated Dividend Payments for Q2 2020
The current federal deficit and debt
Record jobs gain of 4.8 million in June smashes expectations; unemployment rate falls to 11.1%
Minimum Wage increase 2020 – wages rise by 1.75%
Public debt of the United States of America from June 2019 to June 2020, by month(in billion U.S. dollars)