Tax cuts, real wage growth, increased consumer confidence – each of these are great by themselves. But, when you combine a tax cut with real wage growth, you have a 1-2 punch that packs a powerful upswing for America’s middle class.
The Census Bureau reported real median household income at nearly $66,000 in 2019, the highest median income ever, growing nearly 8% since President Trump’s election. The median incomes of $63,179 in 2018 and $62,626 in 2017 better highlight the 2019 growth, with total increases of more than $4,000 since President Obama. Comparatively, President Obama’s median income grew $1,000 from the start of the recovery after the Great Recession in June 2009 through January 2017. President Bush’s figure is even lower at just $401 throughout his eight-year tenure largely due to the recession’s downturn.
And real wage growth is actually growing fastest at the lower income levels. When the labor market is tight – as it is now because we have more job openings than people looking for jobs – wages rise. And now, earnings are rising faster for retail, restaurants, grocery stores, entertainment parks, etc. than they are for consulting, medicine, law, tech and telecommunications. In fact, this is the fastest wage growth for the lowest 25% of earners in nearly two decades.
These lower income categories have doubled earnings growth in the last five years and are also double the percentage of growth in hourly earnings for high income earners. Record low unemployment, corporate tax cuts bringing $1 trillion back to the US while keeping money in the US, and business friendly regulation pullbacks have all contributed to these happy stats.
And, in addition to this real wage growth, the 2017 tax reform that went into effect in 2018 has added an average of about $1,400 per household and as much as $2,900 for a married couple with children, according to the Center for Data Analysis at the Heritage Foundation. It is not all roses though, as there are blue state Americans whose taxes went up do to the $10,000 deduction limit on state and local taxes paid – ending federal subsidies of the higher-taxed states.
Consumer confidence is near its all time 2018 high of 123 – on a scale to 138 – coming in at 122 for the fourth quarter 2019. Housing starts hit a thirteen year high in December 2019, supported by homeowner friendly low mortgage rates. All this alongside new all-time market high closes on the Dow, the S&P 500, and NASDAQ, buoyed by an executed Phase 1 China deal and USMCA being passed by both houses of Congress. Add in the possibility of a bilateral trade deal with the UK once they exit the EU at the end of this month, and the economy still has runway for further growth. And even while most signals are pointing positive, we must always prepare for that rainy day which invariably will come. From a purely cyclical perspective, we are overdue for a market correction by almost four years, since we have a bear market downturn (a 20% decline or greater), on average, every seven years since 1929.
Not one to poo-poo this great economic period of growth, I would just take a moment to acknowledge that there is a great deal of uncertainty on the horizon in 2020, and at the start of this new year and this whole new decade, we each could do ourselves a favor by setting some short-term, mid-term and long-term financial goals which includes planning for the next economic correction/downturn. Do that and free yourself to enjoy this economic ride for as long as it lasts…
Rebecca Walser
Rebecca Walser earned her juris doctor degree from the University of Florida and her Master of Law degree in taxation from New York University. She is a frequent national media contributor.
Rebecca Walser is a tax attorney, a certified financial planner, and the author of Wealth Unbroken, who specializes in the strategic planning of maximizing lifetime wealth while minimizing tax through her practice, Walser Wealth Management.
