Jesus' Coming Back

Breitbart Business Digest: Four Policy Changes Trump Can Adopt to Make the U.S. Economy Great Again

What the Trump Victory Means for Our Economy

The decisive election of Donald Trump to a second presidential term has fueled the hopes of investors for a renewal of economic momentum, a stronger labor market, a revived manufacturing sector, and more abundant energy. As a result, the stock market has soared to new highs.

Voters have long signaled their rejection of “Bidenomics,” the combination of big-spending and centralized command-and-control economic policies built around leftwing social and environmental goals that led to the worst explosion of inflation in four decades. Many told pollsters that they believed their own household financial positions had worsened during the course of the Biden administration and said they preferred the economy when Trump was president.

Of course, Trump cannot simply turn back the clock to the pre-Biden era. Too much damage has been done to the economy, and new challenges have to be met with new policies.

Investors have so far focused on three major policy changes likely to be adopted in a second Trump administration. The first is tax cuts, both for workers and companies that produce goods domestically. The second is tariffs, which would likely help domestic manufacturers and encourage investment in the U.S. The third is the unwinding of the massive growth of regulatory red-tape seen in the Biden administration.

But a fourth policy that could supercharge the economy and advance Trump’s agenda is less familiar. Among the advisers to the president, discussions are occurring around using bank regulation to encourage investment in high-tech manufacturing, energy production, and the re-shoring of production.

Preserving the Tax Cuts—and Then Going Deeper

The power of Trump tax cuts is probably underestimated by a lot of economic analysts—although perhaps not by financial markets. Kamala Harris, like Joe Biden before her, had promised to turn back Trump’s 2017 taxes on businesses, raising the top corporate rate to 28 percent. Combined with state taxes, the average corporate tax rate would have risen to 32.2 percent, according to the Tax Foundation. In several states, including California, it would have exceeded 34 percent.

The risk of higher tax rates was likely already holding back investment by companies, lowering employment and slowing innovation. When businesses calculate the after-tax returns on investments—which is ultimately what matters to their shareholders—they do not just use that current statutory rate but the rates they expect to face in the future. So, when many businesses expected a Harris win—and surveys showed that chief financial officers were more likely to expect a Harris presidency—they pulled back on investment.

So, just by securing the current 21 percent corporate tax rate, Trump’s victory makes room for greater investment and higher after-tax corporate profits. This is one of the reasons the stock market has reached new highs in the days following Trump’s election.

But Trump is offering more than just preserving the status quo. He has promised even lower corporate tax rates, particularly for firms that manufacture goods in the United States. Those tax cuts would further boost investment not just by companies already manufacturing goods here but also for companies that currently manufacture elsewhere that they then sell into U.S. markets. The 15 percent rate floated by Trump would provide a powerful incentive not just for U.S. companies to reshore their manufacturing but for foreign companies to build factories in the U.S. and hire American workers.

The tax cuts Trump has proposed for workers, including elimination of taxes on overtime pay and tips, as well as the end of taxation of Social Security benefits would give many Americans more money to spend and invest. This could help bolster consumer spending in a period where many economists fear weakening now that the last of the pandemic-era savings appear to have dwindled or been exhausted.

Regulations and Tariffs

It’s hard to quantify the extent of the economic benefits of deregulation, but they are likely to be quite large. Even before actual deregulation occurs, lifting the risk of ever-escalating regulation under the Harris administration is likely to energize growth. Snipping the regulatory ropes that have shackled business, including costly mandates around climate change and DEI, will make it easier and more rewarding to start new businesses and expand existing ones.

President Donald J. Trump signs a Presidential Memorandum on Protecting the United States Lobster Industry on Wednesday, June 24, 2020, in the Oval Office of the White House. (Official White House Photo by Shealah Craighead)

President Donald Trump on June 24, 2020, in the Oval Office. (Official White House photo by Shealah Craighead)

Tariffs build on each of these. While additional costs for imports may offset some of the benefits from preserving tax cuts, those costs will be far lower than the tax hikes Harris was pushing. If tariffs were to become a drag on the economy—which is unlikely—the revenue they produce could fuel even further tax cuts. What’s more, by encouraging domestic production, tariffs will broaden the U.S. tax base, accelerate growth, increase employment prospects, and have multiplier effects throughout the economy for businesses that provide goods and services to the new U.S. factories.

The fourth leg of the edifice for the new Trump economy is likely to come from an unexpected place: bank capital requirements. While it is well-known that Republicans plan not only on stopping the Elizabeth Warrens and Michael Barrs of this world from squeezing bank lending even further, some Republicans with ties to the Trump administration have a more ambitious agenda.

Banking on the New Trump Economy

Capital requirements—the amount of equity funding banks must use when making loans—could be adjusted to encourage economically beneficial lending. Loans for oil and gas exploration or pipeline construction would carry low capital charges, for example. Loans to companies expanding high tech manufacturing in the U.S. could be encouraged through lower risk weighs.

Unlike direct subsidies, which often lead to waste because companies are spending taxpayer funds rather than their own, companies would still be on the hook for these loans, and banks would still be taking risks in hopes of profit. Free market principles would still direct investment, but with less drag from regulation for activities deemed central to our economic might and national security.

Many of these pro-growth reforms can begin even without Congressional action. Only the additional tax cuts would require new laws to take effect. But each of them could be strengthened if Congress later enshrined the changes into law, guaranteeing that the next administration could not undo them with the stroke of a pen.

Breitbart

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More