by Investor’s Business Daily · January 10, 2018
If there is one thing about which most economists understand and agree it’s the law of supply and demand. A derivative of that law is that demand and velocity of transactions tend to diminish as costs increase. While few individuals disagree about this, many in the collective body of economists have become so politicized that when it comes to the cost of variables such as taxes and regulations, that consensus all but vanishes.
XIndeed, to listen to many of the pundits and experts there seems to be confusion, denial and disagreement about how the cost of regulations and taxes actually affect economic activity.
Last year a University of Chicago Booth School of Business survey of so-called top economists — including Nobel Prize winners and former presidents of the American Economic Association — found that only one in 42 economists polled thought that the Republican tax reduction bill would boost the economy.
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Recently, Princeton economics professor and former vice chairman of the Federal Reserve Alan Blinder stated in the Wall Street Journal that there was little economic evidence “that tax benefits showered on corporations will translate mostly into higher wages and vastly faster economic growth.”
It’s not at all difficult to grasp the reasons for the markedly different economic performance of the Obama years as compared to what we have experienced in just one year of the Trump administration. Obama’s best year of his two terms delivered a 2.6% growth rate, and he was the only president in some 88 years (since Herbert Hoover) to have failed to deliver economic growth of 3% in any one year he was in office.
In contrast, in the first two full quarters of the Trump administration, the economy experienced 3.2% growth.
During his eight years, Obama oversaw an output of some 3,069 regulatory rules and nine new taxes that were part of the ObamaCare health law, adding nearly $900 billion in costs to the U.S. economy, and a record 572,000 pages to the Federal Register. In contrast, in his first 11 months, Trump has eliminated some 66 significant rules while adding only three, which equates to a ratio of 22 to 1 — far exceeding the standards of his Executive Order 13771 requiring 2 old rules to be eliminated for every new one added.
The stock market closed out 2017 with a record increase for the eighth year of economic expansion, largely due to deregulation and anticipation of tax cuts.
No sooner had the ink dried on President Trump’s signature on the Tax Cuts and Jobs Act of 2017 on December 22, than more than a dozen companies, such as AT&T, Comcast NBC, Boeing, American Airlines, Southwest Airlines and Kansas City Southern, announced special $1,000 bonuses to more than 300,000 employees, and tens of billions of dollars of spending increase on plant, capacity, facilities and workforce development.
2018 has come in like a lion with the Tax Cuts and Jobs Act delivering more headline news. Now it’s reported that more than one million American workers at some 60 companies will be receiving pay raises and/or bonuses — undeniably attributable to the reduction of corporate tax rates from 35% to 21%. Wells Fargo, PNC, Bank of America, Fifth Third Bank, and BB&T, to name just a few — all cranked up minimum wages paid to $15/hour and spread the new found wealth anticipated from tax savings in generous bonuses to more than a hundred thousand employees.
President Trump said from the beginning that lowering tax rates, simplifying the tax code, and making American companies more competitive would be the fuel that propels our economy to new heights.
It’s baffling that political bias can obviate empirical evidence and common sense. One surely doesn’t need a Ph.D. in economics to grasp how tax and regulatory costs affect behavior.
By helping companies become more competitive through lower tax rates, a simplified tax code, incentivized capital investment, and removal of regulatory barriers, President Trump and the Republican Congress have actually delivered, in the first year of working together, the essential foundation to make America great again.
Powell is an economist and senior fellow at Discovery Institute in Seattle. Reach him at [email protected]