The Trump administration’s tax reform of 2017, which took effect in 2018, was viewed prospectively, and now retrospectively, as a contributor to U.S. economic growth. But there was – and remains – a great deal of controversy over the size of the macroeconomic effects of the tax changes.
In January 2018, in the spirit of resolving some of the controversy, the Brookings Institution recruited Jason Furman (chair of the Council of Economic Advisers under President Barack Obama) and me to write a joint paper focusing on the prospective growth effects of the tax changes. No doubt Brookings thought that combining a liberal viewpoint (Furman’s) with mine (which I view as pro-market) would avoid political bias and thereby generate estimates closer than usual to the “truth.” I leave it to other observers to assess whether this bold attempt at consensus was successful.
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The U.S. real GDP growth rate of 3.2% for the first quarter of this year is impressive, as was the 3% average growth in 2018 (measured from the fourth quarter of 2017 to the fourth quarter of 2018). Since the end of the Great Recession – from 2011 to 2017 – the U.S. economy grew by only 2.1% per year, on average. What accounts for the recent acceleration?