Federal statisticians are beginning to put a wrap on 2018, providing a clearer picture of the positive effects of President Trump’s tax cuts and regulatory rollbacks. There are two sets of data that truly stand out: manufacturing job growth and the rate of private sector job growth in the states.
Looking at the national jobs numbers, the first two years of the Trump Administration compare favorably with the last two years of the Obama Administration, with the nation’s employers adding about 28,000 more private sector jobs under Trump than under Obama.
The huge difference is in the manufacturing sector—a vital part of the economy that, after the initial bounce back from the deep recession a decade ago, fell into the doldrums under Obama. So much so that the former president said that those jobs “are just not going to come back.”
A big reason for the sluggish manufacturing job growth of previous years was the burdensome regulatory climate under Obama. This is partly reflected in the jobs numbers as well when, during Obama’s last two years, government added six times the employees of manufacturing. But under Trump, five times more manufacturing jobs were added than government jobs.
Further, the boom in manufacturing job growth started immediately after Trump was elected, showing the effect that the anticipation of regulatory relief had on hiring and investment decisions. As it turns out, that anticipation was well-founded, as the Trump Administration eliminated 2.7 significant regulations for every one added through last October, saving the economy at least $33 billion.
The Tax Cuts and Jobs Act ended the long-time federal subsidy of high state and local taxes (SALT) by capping the deduction at $10,000 per filing household. And while most Americans received a tax cut, some similarly situated taxpayers received more or less of a tax cut depending on whether they lived in high-tax states like California or New York, or low-tax state like Texas or Florida.
Since all things being equal, investment capital follows returns, it stands to reason that the tax law’s change in the treatment of SALT might show up in the state level employment reports. In fact it did, almost immediately, as job-creating resources shifted towards lower-tax jurisdictions.
Now, after a full year of jobs data, we can see that the 19 low-tax states—defined as having average 2014 SALT deductions between $4,800 and $8,300 for filers who itemized their individual income tax returns—added private sector jobs at a 75.5% faster pace than in the 10 high-tax states—with average SALT deductions ranging from $11,800 to $21,000. Compared with the 21 medium-tax states, with SALT deductions ranging from $8,700 to $11,600, low-tax states saw 59.8% faster private sector job growth.
The four most-populous states feature two low-tax states, Texas and Florida, and two high-tax states, California and New York. Over the past year, Texas enjoyed private sector job growth of 3.65% with Florida clocking in at 3.19%. High-tax California added 1.76% more private sector jobs in 2018 with New York seeing growth of 1.47%. Among the 50 states and D.C., private sector employers added 2.15% more jobs to their payrolls.
Due to a divided Congress, additional tax reform at the federal level isn’t likely. However, states have every opportunity and incentive to revisit their tax laws to attract new job creating investments.