The Economy In An Election Year
Since 2009, the US economy has expanded each year. This expansion run is near a record but to listen to Republicans, one might fear recession, if not depression, was at our doorsteps.
Republicans offer a remedy… massive tax cuts for the wealthy by reducing the higher marginal rates plus dropping corporate rate from 35% to maybe 15%, and wholesale revocation of regulations (which ones are not clear but environmental related ones seem for sure). Why should voters believe these steps will boost economic growth?
IMO, voters shouldn’t believe GOP claims.
During George W Bush’s 8 years, GDP growth never reached 4% per year. Many Republicans today hold out 4+% as “in the cards”. Bush’s Administration averaged slightly over 2% per year!
And remember, Bush used tax cuts (you guessed it, favoring the wealthy) to stimulate the US economy. Under Bush the economy peaked at 3.8% growth before crashing in 2008 into negative numbers. What goes up usually must come down.
It might also be useful to look at the current US economy in global terms.
In 2015, the US economy grew at a 2.4% (hmmm, slightly more than “W’s” average) and the US ranked about the median of all other countries. With a few exceptions, namely China and India, the countries that grew faster than the US were smaller, relatively minor world economic players like Ethiopia, Papua New Guinea and Uzbekistan.
As significant, the US’ 2.4% was greater than most of the modern industrial world like Germany, France, Canada, and Japan. And of course, in absolute terms the US economy, at almost 18 trillion dollars, is that largest in the world.
So what can politicians reasonable say about the economy?
While everyone can dream of sustained economic growth greater than 4%, looking at the world order, this noble goal might be “just dreaming”. A more reasonable number might be 2.5-3.5%. Such a goal would put pressure on Congress and the next President to ensure the economy grew but did not grow so fast as to bring on another crash.
US tax policy offers a two edged knife. Lower taxes (across the board) does little for the poorer Americans (almost half of tax payers) because they already pay little or nothing. More sinister, lower taxes for the wealthy and corporations just put more money in rich pockets and have been shown to do little to increase consumption.
Raising taxes is just as risky since taking from the rich and giving to the poor, Robin Hood style, while appealing could have many unintended consequences. (Some of the proposals like a minimum 30% tax rate for those earning more than $10 million or returning marginal income tax rates and capital gains rates to those employed in the 80’s (adjusted for inflation) might be safe but probably should be taken in steps.) In general terms, raising taxes is antithetical to raising economic growth. More government spending, however, without increased tax revenue is unwise for the long term.
Since economic growth usually follows the successful workings of a government, one might reasonably question how has the Obama Administration worked together in achieving the 2015 2.4% growth?
Regrettably the answer is near zero. The GOP controlled congress as refused to cooperate and even sanctioned “shutting down” the government and threatening to disown the national debt.
On this basis, if the GOP wished to make positive statements about increasing the US economy’s growth, they could begin with promises to work “bi-partisanly” with the next Administration on serious measures to improve the economic environment. Infrastructure improvements and a clear headed defense policy would be two areas where significant gains could be made with both Democrat and Republican winners.
Donald Trump’s economic growth proposals are vague and lack specificity. His proposals seem consistent with the now familiar GOP list. These flatly will not work for most Americans.
Hillary Clinton’s proposals around infrastructure renewal and surtaxes on the wealthy to finance other jobs improvement projects seems in the right direction. The proposals, however, are just proposals unless the Congress can work productively with her.
Assuming a GOP Congress again will decide to just say “no”, than President Obama’s 2.4% will look mighty good while the US steamrolls towards a third world infrastructure.