Don’t expect a return to the Trump economy

While the gap may be closing, polls typically show that more Americans trust former President Donald Trump than Vice President Kamala Harris on economic issues. This sentiment is understandable given the strong pre-pandemic economy during Trump’s first term and the challenges of inflation and falling real wages under the Biden-Harris administration.

However, voters pinning their economic hopes on Trump’s return may be disappointed.

There is no denying that the Trump-era economy before the Covid-19 pandemic was good. Low unemployment, a growing gross domestic product (GDP) and a booming stock market were the hallmarks of his presidency. In contrast, the Biden-Harris years were marked by an erosion of the purchasing power of American families.

Voters’ skepticism about Harris’s economy is exacerbated by the vice president’s apparent lack of a clear pro-growth vision. He diverts attention on many issues by rarely speaking to the press. It’s hard to say what he really believes on key economic issues like health care and fracking.

When Harris gave the details, they were terrible. This includes her anti-gouging idea, which she has repeated many times, and her desire to increase corporate tax and capital gains tax rates. He clearly believes that economic growth comes from government.

But I have to wonder whether a second Trump term will deliver the economic recovery voters are hoping for.

The circumstances Trump will inherit are much more difficult than those he faced in 2017. Consider the national debt. On the eve of the pandemic, outstanding national debt was too high – about $18 trillion – but paled in comparison to today’s roughly $28 trillion. There is no reason to trust Trump to cut spending or pass necessary reforms, in part because he clearly says he will not touch Social Security and Medicare, two of the main causes of our fiscal problems.

Moreover, even with good economic conditions during Trump’s first term, he and Congress managed to increase the budget deficit to almost a trillion dollars. It is currently almost USD 2 trillion, and according to forecasts it will reach USD 2.8 trillion in 10 years.

Trump may believe he will deliver enough economic growth to wash away our financial troubles. But he’s wrong. The scale of current and future debt is so large that economic growth alone will not be enough. There is ample evidence that debt can be a drag on the economy.

One of Trump’s most pro-growth achievements was his 2017 tax cut package, perhaps surpassed only by his regulatory reform. Some provisions are scheduled to expire after 2025, and Congress will likely make the extension worse than the original law. Democrats are pushing hard to increase child tax credits and other counterproductive tax breaks. With such a high deficit, there will also be pressure to raise taxes in an anti-growth manner.

With good will from Congress, Trump may be able to further reduce taxes on corporate income and capital gains. But cutting taxes is unsustainable without spending cuts, and he has further discouraged budget calculations by recklessly promising to raise the cap on state and local tax deductions and to exempt tip income, overtime wages, and Social Security income (to the tune of trillions) from taxation. dollars dollars).

Trump could achieve significant growth with a rigorous energy deregulation program, but this is a major political challenge that requires discipline and a team he may not have.

Trump’s other policy proposals would be destructive. He firmly believes he would have “better instincts on setting interest rates than, in many cases, the Federal Reserve people or the chairman.” If, as president, he decides that he should control monetary policy, he will further politicize what should be impartial, methodical work, which spells serious trouble in the long run.

More bad news is Trump’s just-announced desire to limit interest rates on credit card debt. The price controls proposed by Republicans are just as destructive as those proposed by Democrats. The economy can survive much government abuse, but it is almost impossible to endure politicians’ attempts to control supply and demand, which lead to serious shortages and other problems.

Trump’s proposal to impose across-the-board tariffs of 10-20% with a special 60% tariff on Chinese goods is also terrible. It would be extremely costly for consumers and harm relationships with our best and most loyal trading partners, depriving Americans of what we want and need.

The temptation to return to pre-pandemic economic prosperity is strong, but no administration can simply turn back the clock. Given some of the policies Trump has been talking about during the campaign, he may have a harder time than most people think.