The tax bill was signed by President Trump on Friday and is now law. In spite of many good individual features, including the reduction of the corporate tax rate from 35% to 21%, it has the overall negative effect of adding $1 trillion to the national debt over the next decade, and this is after allowing for new growth.
Every Republican Senator voted for this new law. That means every single one of them is responsible for increasing our debt by $1 trillion. This includes Nebraska Senator Deb Fischer, who is up for reelection in 2018. She needs to be chastised for voting for this atrocious law.
I am seriously thinking of entering the Republican Primary against her, if there is sufficient support for my candidacy. Here is a summary of my views on the most important issues. Roughly in order of importance:
Debt. Now worse than ever with the new tax law, we will soon be back to trillion dollar annual deficits. The only real solution is to curtail the growth (no actual cuts needed!) of entitlement spending. Otherwise a new fiscal crisis will soon occur.
Global Warming. The evidence for man-made global warming is overwhelming, including warmer and more acidic oceans, shrinking artic sea ice, and rising sea levels. The best solution is to impose a (refundable!) carbon tax to replace all sorts of ad hoc and arbitrary regulations.
Economic growth. The U.S. is the most prosperous large country in the world and prosperity equates to economic growth. But our economy is now growing at a 3% annual clip and the new tax law is likely to overheat it and cause inflation to take off. This will force interest rates up prematurely.
Trade Policy. Withdrawing from NAFTA would be a disaster for the whole country and especially Nebraska with its export based ag economy. It is China’s mercantilist policies, restricting imports from other countries, which need to be opposed.
Immigration Reform. With a national unemployment rate of 4.1% (2.7% in Nebraska), a severe labor shortage is developing. The solution is to establish an adequate guest worker visa program so that employers can be assured of having the employees they need.
Conclusion. Senator Deb Fischer is simply unwilling to make the tough decisions necessary to shrink annual deficits and thereby control our burgeoning debt. I would be a sensible replacement for her. Will you support me if I run? Let me know at firstname.lastname@example.org.
I did not vote for Donald Trump because of his often crude remarks and sleazy behavior. But I am now cautiously optimistic about the prospects for his presidency based on the quality of his nominees for important government posts. Like many of his voters, I “take him seriously but not literally.”
Here is what I think he will do:
Economic Policy. He will try to speed up economic growth, well above the average 2.1% annual GDP growth of the past 7½ years. This can be accomplished with tax reform (lowering tax rates paid for by shrinking deductions), regulatory reform (including paring back Dodd-Frank and the ACA), immigration reform and tougher trade policies. Faster growth benefits the whole country and especially the blue-collar workers who voted for him.
Improving life in the inner cities. K-12 education is a disaster in many inner cities and Betsy DeVos will be a reformer in the Education Department. Ben Carson grew up in public housing and is an excellent choice for HUD.
Foreign Policy. Mr. Trump wants changes from China on currency and trade practices. He also wants more cooperation from Russia in fighting terrorism. He wants our NATO partners to bear a bigger share of their own defense. His Secretary of State designee, Rex Tillerson, supports arming Ukraine against Russia and also supports the TPP trade agreement with Asia. This all sounds good to me.
Fiscal Policy. My biggest concern at this point is our national debt, now 76% of GDP (for the public part on which we pay interest) which is historically high and steadily getting worse. The House Republicans are serious about shrinking deficit spending and hopefully Mr. Trump will support their efforts.
Conclusion. Donald Trump has a highly unconventional (but very effective) style of communication. If it leads to progress in addressing our biggest problems as above, then he’ll have a very successful presidency.
Trumponomics is taking shape: tax reform, regulatory reform and infrastructure spending. The likelihood of President-elect Donald Trump and Congress working together on these major initiatives is so great that the dollar and the U.S. stock market are surging. This complicates the Trump trade agenda:
The yuan is now being driven down against the dollar. China will face even more pressure to devalue in the year ahead as the U.S. Federal Reserve raises interest rates and the dollar continues to strengthen. Stronger U.S. growth will also increase the demand for Chinese goods, making our trade deficit with China even greater.
One way to increase U.S. manufacturing employment is to figure out how to train workers for the 334,000 manufacturing jobs which are now vacant. Wages are stagnant is America today not because we have too few taxes and restrictions on international trade but because we have too many taxes and restrictions on domestic trade here at home.
When the U.S. entered the North American Free Trade Agreement, Mexican taxes on U.S. imports fell from 12.5% to zero, Canadian taxes fell from 4.2% to zero and U.S. taxes on Mexican and Canadian imports fell from 2.7% to zero. In other words, NAFTA improved America’s competitive position.
Pro-growth economic policies are the key to higher wages. From 1900 to 2000 employment in agriculture declined from 41% of the workforce to 1.9%. But the number of jobs in the country rose fivefold and average real income rose eightfold. All because of pro-growth economic policy. The same thing can happen again with respect to manufacturing employment in the 21st century.
Eliminating direct currency manipulation and special interest provisions in existing trade agreements will benefit American workers, raise world living standards and reinforce the impact of Mr. Trump’s primary recovery program.
Conclusion. Restricting international trade won’t bring back high-paying manufacturing jobs. But faster overall economic growth will create more jobs and better paying jobs as businesses have to compete more vigorously for qualified employees.
I want to emphasize that I voted for Hillary Clinton on Tuesday because Donald Trump has such a sleazy and mercurial personality. But Mr. Trump was clearly the change candidate and we need change big time. His strongest base of support is the white working class which has not really recovered from the Great Recession of 2008-2009 and he will surely try to help out these people.
Here are the changes we need in order of importance:
Grow the economy faster. Tax reform, individual and corporate, and regulatory reform are what are most needed. Mr. Trump and the House Republicans are in rough agreement on both of these major initiatives and hopefully the new Republican led Senate will go along. The best kind of tax reform means to lower tax rates and shrink deductions enough to avoid losing tax revenue. This can be accomplished if a real effort is made to do it this way.
Begin to shrink our massive debt. This can only be done by major entitlement reform, meaning to control the costs of Social Security, Medicare and Medicaid. Medicare should be transitioned over from a single payer system to a premium support system, consistent with a reformed Affordable Care Act. Healthcare costs can only be contained by giving consumers more skin in the game, meaning higher deductibles supplemented with health savings accounts.
More assertive foreign policy. Worldwide peace and stability depend on our own economic and military strength. Right now China, Russia and Iran think they can push us around. President Trump will not let this happen.
Trade and immigration policy. Most knowledgeable people agree that international trade is generally beneficial. We simply have to do a better job of retraining American workers who lose their jobs to foreign competition. The key to immigration reform is tougher border security plus an effective guest worker visa program.
Conclusion. The Republican House of Representatives has an excellent plan, “A Better Way,” for American economic, fiscal and social renewal and Mr. Trump is largely supportive of it. This augers well for fundamental progress in the next four years.
In my last post, “Donald Trump’s Best Chance to Win in November,” I said that the best way for Mr. Trump to broaden his appeal beyond working-class whites and to have any chance of winning the presidential election is for him to endorse the reform plan, “A Better Way,” recently developed by the Republican House of Representatives. Here is a brief and positive summary of the Trump platform so far:
His tax plan is highly pro-growth and will not cost nearly as much as the previously advertised $10 trillion over a decade.
He supports legal immigration and simply wants to solve the illegal immigration problem, one way or another.
He is not opposed to foreign trade per se but wants to negotiate, from a position of strength, with countries that manipulate their currencies, steal intellectual property or compel companies to disclose trade secrets as a condition of entering their markets.
His policy proposals so described are completely compatible with the House’s “A Better Way” reform plan whose planks are:
Poverty. Reward work. Tailor benefits to people’s needs. Improve skills and schools. Demand results.
National Security. Defeat the terrorists. Protect the homeland. Defend freedom.
The economy. Regulate smarter. End bailouts and cronyism. Put students and workers first.
The constitution. Make government more accountable and more representative. Restore constitutional checks on spending.
Health Care. More choices and lower costs. Real protections and peace of mind. Cutting edge cures and treatments. A stronger Medicare.
Tax reform. Simplicity and fairness. Jobs and growth.
These guiding principles are being fleshed out into complete policy documents. They do indeed represent a better way forward for our national government. Donald Trump could do far worse than to endorse this comprehensive reform plan developed by the House Republicans. It would show that he is serious about “Making America Great Again.”
My last five posts have discussed several different aspects of the question, “Can the U.S. Economy Do Better?” Our economy has been doing especially poorly since the end of the Great Recession seven years ago (see the chart below). Many people claim that the President doesn’t really have all that much control over the economy. Here is what the2016 presidential candidates are saying on economic policy so far:
Hillary Clinton. She wants national paid family leave, a national minimum wage increase and more government spending on infrastructure projects. She would raise taxes by about $100 billion per year to pay for these initiatives. She is opposed to the Trans Pacific Partnership to expand trade with 11 other Pacific Rim countries.
Donald Trump. His top priorities are trade and immigration policy. Would he be able to successfully address China’s currency manipulation without starting a trade war? How would he be able to round up and deport millions of illegal immigrants without destroying millions of jobs and thereby crippling many businesses? His plan to slash tax rates would boost the economy but also add trillions of dollars to the debt.
As I have discussed over and over again on this blog, see, for example, here and here, there are several fundamental policy changes needed to make our economy grow faster and create more and better paying jobs. We need to:
Make it easier to start a small business by simplifying regulations at all levels.
Lower tax rates and simplify the tax code, paid for by shrinking deductions and closing loopholes.
Respond to globalization and new technology by helping its victims rather than blocking progress.
Our two presidential candidates are appealing to the fears of the voters rather than to their hopes and aspirations. Neither of them is espousing policies which will help the economy really grow in a healthy way.
Two leading presidential candidates, Bernie Sanders and Donald Trump are running against trade expansion because they say it costs American jobs. I pointed out in my last post, that there is a strong correlation between international trade and global GDP growth. Today I will focus on the direct benefits to the American economy of expanded international trade. First of all, I refer to a recent article in the Wall Street Journal by Frederick Smith, the CEO of FedEx Corp. Says Mr. Smith:
From less than $50 billion in total trade in 1966, the U.S. now imports and exports over $4 trillion annually in goods and services, out of a global trade market which exceeds $15 trillion annually.
NAFTA has clearly been an economic success. U.S. trade with Mexico and Canada has risen to $1.2 trillion in 2014 from $737 billion twenty years ago.
History shows that trade made easy, affordable and fast always begets more trade, more jobs and more prosperity.
The U.S. typically runs a trade deficit of about $500 billion per year. The New York Times journalist, Neil Irwin, explains what this means. Says Mr. Irwin:
The dollar is a global reserve currency, meaning that it is used around the world in transactions which have nothing to do with the U.S.
This creates upward pressure on the dollar for reasons unrelated to trade flows between the U.S. and its partners. That, in turn, makes the dollar stronger and American exporters less competitive.
In other words, trade deficits with other countries serve as their reserve dollars.
Maintaining this global reserve currency creates lots of advantages for the U.S., including lower interest rates and higher stock prices.
The centrality of the dollar to global finance gives the U.S. power on the global stage which no other country can match.
There certainly are workers who lose their jobs because of trade competition. We can and should do more to help these workers get back on their feet. This will increase popular support for free trade and allow its growth to continue unimpeded.
Thus spoke George Osborne, Great Britain’s Chancellor of the Exchequer, in a recent speech to the Economic Club of New York. “By applying a consistent and long-term economic plan, we can ensure that our best days lie ahead. If we reduce our high debt so we can weather new shocks, and take the difficult decisions to make our economies more productive, we can provide rising living standards for our citizens.” According to Mr. Osborne, any long term economic plan needs to include three elements:
An activist monetary policy to do whatever it takes to sustain sufficient demand in the economy.
A credible commitment to sustainable fiscal policy. Some have argued that fiscal consolidation is incompatible with economic recovery. But recent experience, e.g. sequestration in the U.S. and a balanced budget in the U.K., has shown the reverse.
An ambitious program of supply-side reform. The U.S. has a booming technology sector and the fracking revolution. The U.K. has cut its corporate tax rate to 20%, welcomes disruptive innovation and is pushing ahead on shale gas.
In the U.S. things are moving in the right direction and so the focus needs to be on keeping the momentum going. Monetary stimulus has accomplished much but now a sound exit policy is needed. Sequestration has slowed down the growth of government debt but has not ended it. Further progress will require entitlement reform, especially for Medicare and Medicaid. But first, the Affordable Care Act needs to be improved to do a better job of controlling the overall cost of healthcare. Infrastructure improvement, tax reform and expanding trade are the supply side keys to increasing productivity and shared prosperity.
Activist monetary policy, credible fiscal policy, and ambitious supply side reform: these are the policies which will lead to future progress!
The economy added 321,000 jobs in November, the most in one month since January 2012.
The unemployment rate of 5.8% remains steady and is down from 7% in November 2013.
The average hourly earnings for workers is up by 2.1% from a year earlier.
Economic growth for the third quarter is up 3.9% from the previous quarter.
The deficit for the 2014-2015 fiscal year was “only” 2.8% of GDP and is predicted by the Congressional Budget Office to drop to 2.6% for the current year.
The price of a gallon of gasoline has dropped to $2.71 on average, its lowest level since 2010 and is still dropping.
The New York Times predicts that the “Brighter Economy Raises Odds of Action in Congress.” Jason Furman, Chairman of the White House Council of Economic Advisors, is quoted as saying that “At least there will be less of a philosophical debate on infrastructure, tax reforms and expanding exports. You can have that agenda because the economy is not in free fall.” These three items would make a great agenda for the 114th Congress in the following way:
Infrastructure. The continuing drop in the price of gasoline offers the opportunity to replenish the inadequately funded Highway Trust Fund in a fiscally responsible manner. Congress should raise the federal gasoline tax above its current 18 cents per gallon to a level which is sufficient to fund the entire federal share of highway construction and repair.
Tax reform. Individual and corporate tax reform will give the economy a huge boost. The idea here is to lower tax rates in a revenue neutral way by closing loopholes and deductions.
Expanding Exports. What’s needed here is to give the President fast track negotiating authority so that Congress has to vote any trade agreement up or down without modification. This is the only way to get other countries to make concessions.
Of course there are many other issues which need to be seriously addressed by the new Congress. But relatively quick action on just these three less controversial items would be a great start!
The American Enterprise Institute is one of my favorite Washington think tanks. It defines its mission as “research and education on issues of government, politics, economics and social welfare.” I especially like its interest in social welfare which translates for me as being fiscally conservative with a heart. The AEI’s Timothy Carney has just proposed “An anti-corporate welfare, anti-cronyism agenda for the 114th Congress.” Most candidates for Congress condemn crony capitalism and corporate welfare. This generally means any policies which tilt the playing field, picking winners and losers and rewarding well-connected insiders. Such actions contribute to the public perception that the “game” is rigged and harm economic growth and innovation. Here are some prime examples discussed by Mr. Carney:
Health Care: repeal Obamacare’s insurer bailout (the “risk corridors”) so that health insurers compete totally on price.
Health Care: end the individual mandate which forces people to buy a product from a private industry. An alternative incentive for individuals to remain covered would be limiting enrollment periods, for example, to a brief six-week sign-up period every two years.
Energy: end tax breaks and subsidies for both renewable energy (including ethanol) and oil and gas. Make all forms of energy compete in the market.
Taxes: make corporate taxes simpler, lower and more neutral. Besides being fairer, such changes will boost the economy.
Finance: Rein in Fannie Mae and Freddie Mac by treating them the same as all big banks. This means the same capital requirements, the same tax treatment and the same consumer protection regulation.
Finance: Kill Dodd-Frank’s too-big-to-fail designation. It acts as a moat, protecting the big guys from competition.
Trade: Kill the Export-Import Bank.
Trade: Repeal the Jones Act. It requires all shipping between U.S. ports be done on U.S. flagged vessels.
Agriculture: End the Sugar Program which costs consumers $3 billion per year.
Agriculture: Reform the Federal Crop Insurance Program by making it self-supporting.
These mostly well-known examples of corporate welfare represent just the tip-of-the-iceberg. Nevertheless they provide a good place to start in cleaning things up!