Economy Bound To Emerge <br>As Number One Issue <br>In Presidential Race

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

The good news is that the economy is growing at 2% and that there’s no recession in sight (barring a complete collapse of profits). The bad news is that the economy is growing at 2%. It’s been doing so for nearly 15 years under Democratic and Republican administrations.

Coming off a deep recession, real GDP growth is averaging no better than 2%. After 25 quarters of so-called recovery under President Obama, it has increased a total of only 14.3%.

Compare this to earlier periods. After the JFK tax cuts of the early 1960s, the economy grew in total by roughly 40%. After the Reagan tax cuts of the 1980s, the economy grew by a total of 34%.

And here’s the killer: Real middle-class wages are still flat lining. These individuals get nothing out of 2% growth. As I feared, subpar economic growth never really came up in the Republican debate in Houston. Rather than growth, we got more catfights. It’s time to get serious.

In a recent essay, John H. Cochrane, a senior fellow at the Hoover Institution, wrote “sclerotic growth is the overriding economic issue of our time.” He has numbers to back this up.

Between 1950 and 2000, the U.S. economy grew at an average rate of 3.5%. That generated a massive gain in real GDP a person to more than $50,000 from $16,000. A huge win for the middle class.

But as Mr. Cochrane noted, if the whole post-WWII period had grown at 2%, income per person would have increased from $16,000 to only $23,000 %— about half of what actually happened at 3.5% growth.

There is a big difference between 2 and 3.5% growth. It’s not abstract or theoretical. Essentially, the middle class has not gotten a raise in 15 years. A new report from Sentier Research finds that median household income of $56,700 (adjusted for inflation) at the end of 2015 is almost exactly where it was at the end of 2000.

Not surprisingly, the middle class is cranky and angry. They are voting for change. Significant change. As in throw-the-bums-out change. That includes presidents, members of Congress, big-company crony capitalists, and corporate welfarists.

The middle class is saying the system is rigged against them, and they want to change who’s running the system.

Much of this gets to the root of the inequality debate. Democrats like Hillary Clinton and Bernie Sanders want to raise taxes on the rich, saying it will solve inequality. It won’t. All that will do is significantly reduce incentives to work, save, and invest.

But I say inequality is not the problem. The problem is a lack of growth. Middle-class people who haven’t seen a raise in all these years don’t want to punish success, and they’re not jealous of those who have done well. They just want their piece of the pie.

While the pie itself has stopped growing, the individual slices have gotten smaller. Can you blame their anger and desire for radical political change? Nope.

Coming out of the caucuses and primaries so far, the economy has been the number-one issue. There’s a message there. The GOP has to address the issue of growth versus inequality. So far they haven’t done it.

With the GDP report for the fourth quarter ended in December, we know that the inflation-adjusted economy is growing at 1.9% over the last year. Business fixed investment — the category that produces good-paying jobs — is growing at 1.6%. Low gasoline prices have helped consumer spending rise by 2.6%, but even that’s not a wildly optimistic number. The inflation rate, meanwhile, is a measly 1.1%.

All this tells me nothing has really changed. But we can change this fast.

Research has shown that middle-income wage earners would benefit most from a large reduction in corporate tax rates. The corporate tax is not a rich-man’s tax. Corporations don’t even pay it. They just pass the tax on in terms of lower wages and benefits, higher consumer prices, and less stockholder value.

So as I’ve written a million times: Slash the corporate tax rate to 15% for large C-corps and small S-corps, go to immediate tax deductions for new investment, and make it easy for firms to repatriate their overseas earnings.

This would be the single-most stimulative program for reigniting economic growth. Principally, it’s a middle-class tax cut. If you combine that with regulatory rollbacks and a stable dollar, within less than a year the American economy can break out of its doldrums.

To all the GOP candidates: Please send this message. To my Democratic friends: Why not revive the legacy of the JFK tax cuts? It would be a whole lot better than punishing success.


The New York Sun

© 2024 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

By continuing you agree to our Privacy Policy and Terms of Use