Just as no team can win the Super Bowl that cannot advance the ball more than their opponent, the American economy cannot create jobs, incomes and wealth moving the ball down the field less effectively than our international competitors.
But that is what has been happening for the last seven years under Obama and his policies: fewer yards gained and too few points on the scoreboard. In fact, this has been the weakest economic recovery since the Great Depression.
How can we reverse that, and advance the American economy so that all Americans can be on the team that wins the international Super Bowl economic competition?
New House Ways and Means Chairman Kevin Brady, who succeeded now Speaker Paul Ryan at that post, explains the following fundamental economic arithmetic: Annual real economic growth of 3 percent is not 1 percent more than 2 percent growth. It is 50 percent more, at least.
If average annual real economic growth under President Obama of 2.2 percent were increased to the more normal American 3.2 percent, then after 50 years, U.S. GDP would not just be 50 percent more, but 62.7 percent more, nearly two thirds greater. By the 50th year, U.S. GDP would be $30 trillion less under Obama’s 2.2 percent real growth than it would be under the more normal American economic growth of 3.2 percent.
America’s cumulative lost income and wealth over the 50 years would be $521 trillion! In other words, over the long run, the difference between 3.2 percent real economic growth and 2.2 percent is the difference between America and Argentina.
That basic math is why middle class incomes have been in decline under Obama. The Census Bureau reports that since Obama became President 7 years ago, real median household income has fallen by $1,300 a year. Heritage Foundation Chief Economist Steve Moore explained in testimony before the Ways and Means Committee, “At 2 percent growth the economy doesn’t spin off enough jobs to increase wages, and tax revenues grow much too slowly to balance the budget.”
The recession officially ended more than 6 years ago. Wages and incomes have always grown in recoveries, not declined. Moreover, the American historical record is the deeper the recession, the stronger the recovery. The economy is supposed to boom in a recovery to catch up with its long term economic growth trendline. But over 6 years after the recession ended, that still has not happened. Instead, what we have gotten under President Obama is the worst recovery from a recession since the Great Depression.
That basic math is also why poverty has soared under President Obama. During Obama’s first term, the number in poverty increased by nearly 31 percent, to 49.7 million, the highest level in the more than 50 years that the Census Bureau has been tracking poverty. The poverty rate climbed by over 30 percent to 16.1 percent, at least as high as when the War on Poverty started 50 years ago. Today, six million more Americans are in poverty than when President Obama entered office 7 long years ago.
And the math just keeps getting worse. In the 4th quarter last year, GDP grew by a negligible 0.7 percent, threatening renewed recession. The growth gap from the recovery under President Reagan compared to President Obama’s “recovery” is now nearly $3 trillion. As Moore testified, “if the economy had grown as fast under Obama since the recovery began as it did under Reagan’s recovery, we would have $3 trillion more output over the last 12 months.”
We would also have nearly 6 million more jobs, according to the U.S. Bureau of Economic Analysis. Moore testifies, “The jobs lost from anemic growth are roughly the size of the entire labor force of Ohio.”
This has resulted because since he entered office, Obama has consistently followed anti-growth policies, the opposite of what needs to be done to restore booming economic growth. Instead of cutting tax rates, he has raised rates for virtually all federal taxes, while maintaining the highest corporate tax rate in the entire world. Instead of reducing regulatory costs, burdens and barriers, he has increased them more than any other President in history.
Instead of reducing federal spending, deficits and debt, Obama has allowed them to soar to the highest in American history, threatening to shut down the government and blame the Republicans for it if he doesn’t get his way. That runaway spending began with Obama’s failed, nearly $1 trillion dollar so-called “stimulus” spending bill, which failed to stimulate anything except federal spending, deficits and debt. Only the House Republican majority the public first elected in 2010 has managed to restrain Obama Democrat spending.
The Committee to Unleash Prosperity, founded by Art Laffer, Steve Forbes, Larry Kudlow and Steve Moore, is taking the lead to restore booming growth. Moore testified before Ways and Means as to the immediate opportunity to generate booming growth by removing regulatory barriers to vastly increased energy production:
“We estimate that the value of oil and gas under federal lands that can be recovered with existing technologies like horizontal drilling and fracking is at today’s prices roughly $50 trillion. This is arguably the greatest treasure chest in world history. Not only would we massively stimulate the economy by drilling on non-environmentally sensitive federal lands…over the next 20 years the government would raise $3 trillion in revenues for Uncle Sam – at zero cost to taxpayers.”
For the longer term, the Committee proposes permanently reducing the federal corporate/business tax rate from 35 to 15 percent. This would reverse capital flight and major corporations fleeing the U.S. through corporate “inversions” with foreign companies – mergers with the surviving company gone from America.
Pfizer was the 10th largest American company when it merged overseas to become an Irish company. As Moore testified regarding corporate tax rates, “The current U.S. rate of 35 percent (federal) is the highest of all the nations we compete with. The rest of the world is closer to 25 percent [down from 40 percent in 1990] with some nations like Ireland as low as 12.5 percent. Let’s go from one of the highest rates in the world to one of the lowest and jobs and capital flows will reverse course and rush back to the United States.”
President Obama’s own tax reform commission, headed by former Fed Chairman Paul Volcker, concluded that, “The high statutory corporate tax rate reduces the return to investments and therefore discourages saving and investment … . The tax acts to reduce the productivity of American businesses and American workers, increase the likelihood and cost of financial distress, and drain resources away from more valuable uses.” Moore adds, “A cut in the corporate tax rate would have large effects on GDP, but minimal effects on federal revenue over the long run.” Nothing else has this kind of bang for the buck, he writes.
For the longer term, the Committee proposes a flat tax, with a broad base and rates as low as possible, like the 15 percent flat rate business tax proposed by Senators Ted Cruz and Rand Paul. That business tax would generate so much revenue that Cruz and Paul propose to eliminate as well the corporate income tax, the Social Security payroll tax, the death tax, the Alternative Minimum Tax, and all the Obamacare taxes.
Unlike Keynesian economics borrow and spend, good economic policy can produce booming economic growth, as it did for 25 years, under the pro-growth policies adopted by President Reagan. That growth in turn increases revenues, as it did under Reagan. Even though Reagan cut federal income tax rates across the board for everyone, including reducing the top rate from 70 to 28 percent, federal revenues doubled during his two terms in office, 1981 to 1989. Chairman Brady knows all this, and is promoting pro-growth tax reform, with sharply lower rates while also slashing special interest, corporate welfare loopholes..
These and other components of a broad pro-growth economic policy agenda offer the potential of the greatest economic boom in American history. Jobs, businesses, and capital would flow back into the U.S. from across the planet, and America would recover the world Super Bowl of prosperity once again.
Lew Uhler is the Founder and President of the National Tax Limitation Committee and National Tax Foundation (NTLF). Peter Ferrara serves as Senior Policy Advisor for Budget Policy and Entitlement Reform at NTLF, and as a Senior Fellow at the Heartland Institute.