When candidate Donald Trump promised 4 percent growth for the U.S. economy in September of 2016, CNN scoffed, “Trump promises 4 percent growth. Economists say no way.”
In an Oct. 11, 2016 op-ed, CNN continued, “No chance, say 11 economists surveyed by CNNMoney. ‘No, pigs do not fly,’ says Robert Brusca, senior economist at FAO Economics, a research firm. ‘Donald Trump is dreaming.’
“So what’s realistic? The San Francisco Fed estimates the ‘new normal’ for annual economic growth to be 1.5 percent to 1.75 percent.”
Once elected, President Trump promised that if his tax plan were enacted, although taxes rates would be cut, there would nevertheless be an increase in federal revenues and a decrease in the deficit.
This increase in revenues would occur because the economy would grow, and businesses would see greater profits and pay more in taxes, not withstanding the lowering of the tax rates.
Now, the president’s first prediction, that the economy would take off, seems to be coming true to anyone with an open mind.
On July 27, the Department of Commerce announced that the “U.S. gross domestic product advanced by 4.1 percent in the second quarter of 2018.” CNN now dismisses that 4.1 percent growth rate, trotting out economists who now claim that it is “unsustainable.” Probably the same 11!
Trump disagrees and says the 4 percent growth rate is sustainable and promises “it will get even better.” So who are you rooting for, the President or CNN?
But assuming that the President’s first prediction that economic growth would take off if his plan were approved is coming true, what about his prediction that the deficit would be reduced?
The belief that a decrease in tax rates could result in increased federal revenues, and a decrease in the deficit, is not an original Trump idea. President John F. Kennedy made the same prediction 56 years ago.
On December 14, 1962, Kennedy in an address to the Economic Club of New York laid out his case for a cuts in individual and corporate federal income taxes rates.
Kennedy explained, “Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget — just as it will never produce enough jobs or enough profits.
“Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders, but by slow economic growth and periodic recessions, and any new recession would break all deficit records.
“I repeat: our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy, or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve, I believe ... this can be done — a budget surplus. The first type of deficit is a sign of waste and weakness; the second reflects an investment in the future.”
Kennedy believed that high tax rates stifled the economy. He believed that lowering the tax rates would, in the short run, decrease tax revenues. But in the long run, lowering tax rates would unshackle the American economy.
He believed that if the government took less money from the private sector, the private sector would have more money to invest, expand, and hire workers. He believed in the long run that an expanding economy would produce far greater profits and far greater tax revenues sufficient to cut the deficit and even balance the budget.
To put this in concrete terms, the George W. Bush Presidential Center in 2013 projected that a 4 percent growth rate for 10 years would produce an additional 10 million jobs, $3 trillion in revenues, and a 30 percent reduction of the deficit. (And that does not take account of repatriated dollars.)
Trump is using Kennedy’s playbook. I have always believed Kennedy was right. If Kennedy was right, Trump is going to come out of this looking of a lot smarter than CNN’s gaggle of dismissive economists.
Posted: QCOline.com Aug. 16, 2018
Copyright 2018, John Donald O'Shea
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