POLICIES FOR THE NEXT ADMINISTRATION. PART 9: ECONOMIC GROWTH
This is the ninth in a series on the major policy ideas — from Left and Right — that should guide the next presidential administration's agenda. (For the opposing view, see William G. Gale, "An Agenda for Inclusive Growth.")
After the election of Ronald Reagan in 1981, the U.S. Economy experienced one of its greatest booms in history. The growth rate averaged nearly 4 percent for seven years 1982–89. And the stock market rose from less than 1,000 on the Dow to more than 10,000 over the next two decades. This was a period of wealth and job creation that the nation and middle class had seldom seen before. All the liberal critics wrongly said it could not and would not happen.
Now the question is: Could it happen again in this era of massive government debt, meager growth, and flatlined incomes for the middle class? The answer is “yes.” With the right set of policy fixes, we can see a return to wage gains, higher profits (which means a bull run on stocks), and rapid growth in output.
Since the end of the recession, economic growth has averaged an anemic 2 percent, producing the weakest “recovery” since the Great Depression. Over the past year, growth has slowed to an even more anemic 1.5 percent. This is barely staying out of recession. America can do much better.
One thing is sure: Donald Trump and Hillary Clinton have almost diametrically opposite economic plans. Clinton will raise taxes. Trump will cut them. Clinton has vowed to defend President Obama’s “legacy” and double down on job-killers such as Obamacare.
Trump is offering big changes, and I believe they could accelerate the economic growth rate from 1.5 percent to 4 percent for the next five years. That is the equivalent of adding another Texas to the U.S economy. How would he accomplish this?
First, Trump will enact the biggest pro-growth tax cut since Ronald Reagan’s 1981 reform. Trump would simplify the tax code and significantly reduce marginal rates, encouraging investment and economic expansion. His proposed corporate tax rate of 15 percent would make it easier for American firms to repatriate earnings, bringing capital home and making the U.S. a more hospitable place to invest. Every small business would also pay only 15 percent — there are 26 million such firms.
Don’t believe the phony claim that these tax cuts will cost $10 or $20 trillion. Growth will cause revenues to increase, not decrease. And Trump will close tax loopholes as well.
Next, Obamacare, the fastest growing entitlement program of all, which even Bill Clinton admits is a wreck with costs spiraling out of control. This year's 25 percent premium hikes are only the start of a cascade of higher health-care costs. Trump would repeal and replace Obamacare with a consumer-choice health plan. This will cut costs for both families and businesses.
On the regulatory front, Trump wants to reverse immediately dozens of President Obama’s antibusiness executive actions, including the Clean Power Plan, which would escalate a war on energy that has already put tens of thousands of coal miners out of work.
A pro-growth energy policy would mean developing all of America’s abundant resources — oil, natural gas, and coal. Trump’s plan could make America the world’s number one energy producer within five years, producing millions of new jobs and trillions of dollars of extra output — along with new royalty payments to the government. Clinton, by contrast, wants to please the radical environmentalists by blocking energy development and subsidizing, instead, 500 million solar panels — mostly likely built in China.
On immigration, Trump will build a wall to keep out illegal immigrants. But he wants that wall to have wide gates for legal immigrants to come and benefit our country economically. We can't fix our legal immigration system until the border is secured.
I am for free trade and don't always agree with Mr. Trump on this issue. But he is right that China is stealing and cheating in our trade arrangements. That must stop.
The U.S. needs trade. Yet it also must have a president willing to negotiate from a position of strength with countries that manipulate their currencies, steal America’s intellectual property, or compel companies to disclose trade secrets as a condition of entering their markets. Negotiating better trade deals and enforcing the current ones would help the U.S. economy. Taking a tougher stance here might be necessary to restore dwindling support for open markets.
Finally — and importantly — having someone in the White House who knows how to run a business, meet a payroll, and pay the bills would be a vast improvement over the political class that has so weakened America's standing in the world. Without much faster economic growth, America will not retain its status as a world super power. China will surpass us, laughing all the way. It is time to take American competitiveness seriously and fight economically to win.
A resurgence of American prosperity will benefit our citizens and show the rest of the world how to grow out of the worldwide economic malaise that has stalled prosperity everywhere.
Stephen Moore is a senior economic advisor to the Trump campaign and an economist with Freedom Works.
Author's Recommended Reading:
Arthur B. Laffer, Stephen Moore, Rex A. Sinquefield, and Travis H. Brown, An Inquiry into the Nature and Causes of the Wealth of States: How Taxes, Energy, and Worker Freedom Change Everything (Hoboken, NJ: Wiley, 2014).
Arthur B. Laffer, Stephen Moore, and Peter Tanous, The End of Prosperity: How Higher Taxes Will Doom the Economy — If We Let It Happen (New York: Threshold Editions, 2008).
Lawrence Kudlow and Brian Domitrovic, JFK and the Reagan Revolution: A Secret History of American Prosperity (London: Portfolio, 2016).
(Read the response by William G. Gale.)
