As we have said for years, the only way back to solvency, credibility, and respect for the USA is to grow our economy so that we have increased tax revenues to begin paying down our ongoing list of obligations. Growth cannot be stimulated by more regulation and higher taxes, so we frankly don’t buy into those policies which are still being advocated by many after 8 years of miserable economic results.
I have been monitoring the Evolution of Donald Trump’s economic and tax plan, hoping to discover an optimum plan to fix our malaise. While Trump clearly wants to eliminate unnecessary regulation, he has been giving signs of wavering when it comes to tax policy. What began as a 15% income tax rate for individuals and corporations, has changed to a 25% tax rate for individuals. Last Thursday, I listened to Steve Moore, one of Trump’s economic architects advocate for a higher individual tax rate of 30%, suggesting that “the Donald” is not concerned with tax cuts for “guys like him”. That’s not the point. Supply side economics gurus advocate lowering the upper marginal tax rate because that rate is key to the decision of whether to commit capital or not. It’s the projected after tax return that motivates investors, and invested capital is the engine for growth. A lower tax rate increases the after tax return to capital. This should be the fulcrum of economic policy, not social design. Additionally, our economy is driven by small business, which typically uses “pass through” corporate entities which are taxed at the individual tax rate.
As our economy has grown at an average rate of 1-2% per year for 8 years, it stands to reason that we can cut taxes in half across the board if it results in growth of 3-4% per year. I would guess that a 5% rate is possible with that big a cut. Granted, Donald Trump is leaning the right way, but he really doesn’t get it. He is missing the essence of growth economics.