The U.S. economy was motoring along as 2020 got underway, but has taken a sizable hit because of the coronavirus. Getting it back on track requires sound economic policy, not tax and regulatory hikes – and that means advantage Trump.
No one should forget that the eight years of Obama/Biden produced the weakest economic growth of any modern presidency. Not one year did the policies of increased taxes and a much higher regulatory burden produce growth of 3 percent – an all-time record of poor performance.
While those on the Left blame the George W. Bush administration for handing off a poor economy, simple economics tells you that the Obama/Biden response made things worse. By dramatically increasing the costs of doing business in the United States, the Obama/Biden administration reduced growth from what it could have been.
President Reagan, on the other hand, who faced double-digit unemployment and inflation and interest rates above 20 percent – a condition far worse than Obama faced – achieved stellar growth through tax and regulatory reform. In other words, policy matters.
Remember, the economic Law of Demand tells us that the more something costs, the less of it we get. The Obama/Biden administration raised taxes (costs), including those in ObamaCare, on the economy overall.
The Obama/Biden administration also undertook a war on energy in the form of regulatory costs. Beyond just the energy sector, overall, Obama/Biden regulations added billions annually in costs to the U.S. economy – and the higher the cost of something, including the economy overall, the less of it you get.
Faced with poor economic numbers at the end of the Obama/Biden years, the Left said 3 percent growth was no longer possible. In a sense they were right: under the burdens of ever-growing government – spending, regulations and taxes – economic growth is reduced.
That is why our average growth from the 1950s to today has fallen from 4 percent to 2 percent. In Europe, which has an even higher government burden, growth has fallen from 2 percent to zero.
Candidate Donald Trump, who understands such things as the Law of Demand, promised tax and regulatory reductions. Obama suggested that Trump would need a magic wand to reach 3 percent growth.
Instead of a magic wand, President Trump and his Republican allies paid heed to the Law of Demand. By significantly cutting the costs of doing business in the United States, American entrepreneurs, businesses and workers responded as predicted, and the economy indeed reached 3 percent growth and beyond.
No one should be surprised by that outcome. Before 2017, we’d had four major tax reforms (1920s, 1960s, 1980s and 2000s). Prior to each the economy was weak or falling and tax revenues were weak or failing. Each time doubters said a tax reduction would make things worse. Each time, however, the economy improved and tax revenues rose because of the wider economic base and activity that tax reform created.
That is why I predicted that, in the second quarter of 2018, four to six months after December 2017 tax reform passed, economic growth would top 4 percent. Historically, there is a time lag after reform. Also, historically, there is a burst of energy that is let loose after reform. Until the coronavirus, the reforms were producing stellar economic growth – even in the face of our still oversized government burdens.
Now, there can be little doubt that the coronavirus is reducing economic activity. The hospitality and travel industries are being especially hard hit. The stock market drops hurt everyone given that virtually every pension, public and private, in this country is invested in the market.
All of which brings us back to the 2020 election. If Joe Biden is indeed the Democrat nominee, he will do for economic growth exactly what the Obama/Biden administration did for eight years.
How could anyone predict otherwise?
Biden is promising to raise taxes dramatically by undoing the Trump tax reform. Biden has also said: “I guarantee you, we’re going to end fossil fuel.” In other words, Biden is going to reignite the war on business that his prior administration prosecuted. In the face of a weakened economy, the Law of Demand tells us such cost increasing policies would pull the economy under – just as increased taxes on you reduces your ability to spend and save.
Simply put, why anyone would again hire the same people who delivered the worst economic performance ever?
On the other hand, the Trump administration is already moving to further reduce the costs of doing business in America. A reduction in any tax, including the payroll tax and personal taxes as Trump has suggested, is in keeping with the Law of Demand, and is the right prescription to boost the private sector.
We face uncertain economic times. The response should not be to drain the private sector, as Biden would love to do. We should leave money in the private sector, which Trump advocates.