The pace of economic growth in Tennessee is expected to slow over the next two years as the 8-year-long economic recovery nears the longest period of growth in modern times.
But economists at the University of Tennessee said the sweeping $1.5 trillion of tax cuts up for a vote in the U.S. Senate today should still give the state's economy an extra boost, albeit far less than if the tax plan would have been adopted when the economy was weaker.
"When you hit the accelerator from a dead stop you quickly pick up speed, but when you are already traveling along at a fast pace it's hard to get much more speed when you push the accelerator more," said Matt Murray, associate director for the Boyd Center for Business and Economic Research at UT-Knoxville. "The economy is on a roll and growth should continue into 2018 and beyond. But at this point in the business cycle, we expect to see the pace of expansion slow, with slower employment gains and little further improvement in the unemployment rate."
In its annual economic forecast, UT's Boyd Center for Business and Economic Research projects that the tax reform plan should add an extra three-tenths of a percentage point to the growth of Tennessee's economy in 2018 due to lower levies on corporations and businesses and higher deductions for most individuals.
Polls show most Tennesseans either don't like or don't know about the GOP tax plan, which was adopted Tuesday in the House of Representatives and was expected to be approved Tuesday night in the U.S. Senate and signed this week by President Trump.
A poll conducted last month by Democratic pollster Hart Research Associates found only 37 percent of the 400 registered Tennessee voters surveyed polled support the GOP tax reform plan, compared with 47 percent who said they disapprove of the changes.
"Making sure that the wealthy and corporations pay their fair share in taxes is considered a higher priority than across-the-board tax cuts (58 percent to 39 percent)," pollster Peter Hart said.
While cutting corporate taxes may not be popular, Murray said such cuts should provide some economic boost to Tennessee, especially when combined with the doubling of the standard individual deduction that will lower most individual taxpayer bills starting in February.
"We expect there will be more business investment in capital projects to both expand production and improve productivity and that should provide some boost to the overall economy," Murray said. "But the economy is currently operating close to full employment and there is little capacity for accelerated growth, particularly in already tight state and national labor markets."
The pace of job growth is projected to decline in Tennessee over the next couple of years, but the economy of the Volunteer State is still expected to grow and keep the jobless rate near historic lows and below the U.S. average, Murray said.
The UT forecast projects that employment in Tennessee will grow by 1.4 percent in 2018 and by 1.2 percent in 2019. That is down from the pace of the past couple of years, but Murray said the slower pace simply reflects the shrinking pool of available workers when unemployment is already at a historically low 3 percent rate.
Murray said the current 8-year-old recovery is already the third-longest expansion since World War II.
Murray predicts consumer spending will continue to be the backbone of economic growth, expanding by 2.5 percent in 2018 in response to a low unemployment rate and ongoing job gains.
The Federal Reserve, which hiked interest rates last week, is expected to continue to raise rates in 2018 and 2019. Inflation is likely to remain in check, Murray said.
Tennessee's unemployment rate is projected to average 3.1 percent in 2018 and 2019, well below the rate of unemployment for the nation of 3.9 percent and 3.8 percent.
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