Our candidates need to focus on pro-growth measures. Part I.


One of the smartest people I ever met stood at a conference when things were not going well for radiologists. He said that when a department (in this instance radiology) is growing, one can make many errors that go unnoticed – growth covers a multitude of sins. When it is shrinking, every error is magnified.

The same can be said for our nation. When we look at the sources of our problems: retirement pensions, energy prices (too high or low), political chaos, zero interest rates, negative interest rates, China’s economy, terrorism, unemployment, labor force participation, inflation/deflation, Social Security, welfare, healthcare, the Federal Reserve – and the list goes on – growth is the answer! The difference between the paltry 2% growth of the “Obama recovery” compared to 3.5 – 4% growth is astounding!

By way of example, we can look at the last half of the 20th century. If the US economy had grown at 2% rather than 3.5% since 1950, income per person by 2000 would have been $23,000 not $50,000!

The Republican candidates need to stop talking about their wives and their hands and start talking about pro-growth strategies. Instead of trying to explain who touched who in an unwelcome way, they need to explain why high tax rate policies and over burdensome regulation have decreased economic growth and why that is a very bad thing to do. These talking points separate them from the Democrat candidates.

[Sources: Growth Is the Answer to Everything, by John Mauldin and A Primer on Growth, Politics, and Taxation, by Daniel J. Mitchell]

There is virtually no plausible argument against the notion that tax policy influences economic performance. The arguments are about how the “influence” should be measured and whether the tax policy had a salutary or deleterious effect on the economy. That there is no “plausible” argument that taxation has no effect on the economy does not stop progressive/statist/altruists from proposing such spurious arguments. It also induces them to presume that the relationship between tax revenue and tax levels is linear, despite innumerable instances where this has been shown to be wrong.

The individuals who argue that tax policy does not influence economic performance need to explain why the celebrated Laffer Curve is wrong and why rich people paid five times as much tax after Reagan lowered the top tax rate from 70 percent to 28 percent in the 1980s.

One may not like “the rich,” but it is their excess wealth that is the key to a thriving economy. They don’t bury their wealth in the back yard. They invest it.

Big government advocates forget that every dollar that goes to “govern” is taken from a citizen. The government does not produce any wealth. The more that government takes, the less there is available for investment. Leaders like President Obama always “describe” their spending binges as “investments.” But only the most ardent progressive/statist/altruist buys the notion that “fair share” and “investment” are the proper terms to replace “tax” and “spend.”

[From the Mitchell article] The Tax Foundation points us in the right direction. Let’s look at some charts… starting with this estimate of how various tax cuts affect overall economic output.

As you can see, expanded child credits don’t have any positive impact on growth for the simple reason that they don’t alter incentives to work, save, or invest (they may be desirable for other reasons, however). Lower marginal tax rates lead to some added growth, particularly if the top rate is reduced since upper-income taxpayers have far greater control of the timing, level, and composition of their income. But the biggest growth effects come from lowering the corporate tax rate and reducing the tax code’s bias against new investment.

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Progressive/statist/altruists may not like “big business” and they may want large corporations to “pay their fair share,” but when they do, as the saying goes, they cut off their nose to spite their face.

Earlier I mentioned the numerous challenges facing economic growth in the United States. We would see improvement on all fronts if we got GDP growth back up to 4% for a few years. The majority of Americans are concerned about the growing US debt and would like to see a return to paying the debt down. However, if we simply balance the budget and held government budget growth below economic growth, we can simply grow our way out of nearly all of our problems (not terrorism, of course).

We will take up more arguments and data that support pro-growth tax and spending policies in subsequent posts.

Roy Filly

 

 

 

 

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About Roy Filly

Please read my first blog in which I describe myself and my goals.
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