It’s no wonder that voodoo is no longer being used as a smokescreen. In 2017, when the tax reform package was being hashed out, the Democrats were disparaging the legislation, calling it, “tax cuts for the rich” or “trickled down economics” and of course, “voodoo economics.”
Everything is ready for President-elect Trump and the Republican led Congress to take the reins of this economy. The environment for pro-growth economic policies couldn’t be any better. The Fed Fund rate (short term interest rate) is near zero and the inflation rate has still not reached the Fed’s target of 2%. This is a much better situation than it was in 1980.
The economy wasn’t doing well when Ronald Reagan took office in 1981. The Federal Reserve raised the Fed Fund rate to a whopping 20% (today it’s 0.25%) as they tried to curtail the high 12.5% inflation rate (today it’s 1.6%). The country was also experiencing high unemployment. Reagan’s task was to grow the economy in that volatile environment to create jobs.
The new Trump administration has an economic agenda for the US economy to create jobs as well, but in a much less volatile environment. Our economy today is like someone through a wet blanket over it.
To be competitive in a global marketplace we need to lower our corporate taxes. But lowering the corporate rate is just the beginning. We need to change to a territorial tax system and bring trillions of dollars back to the United States.
The US has nearly the highest corporate tax rates in the world, only exceeded by Puerto Rico and the UAE. The top bracket is 35%. Then add state corporate taxes and it is closer to 39%. If profits are distributed to shareholders, then that profit is taxed again. In essence, shareholder distributions are profits that are taxed twice.
The United States also has a worldwide corporate tax for American companies that earn profits from international operations. Foreign profits are taxed at 35%, less any corporate tax paid to the foreign country.
Renegotiating trade agreements, undoubtedly, will be one of the issues that President Trump will face fierce opposition on. But why does Donald Trump want to reform these trade deals?
Free trade is meant to open up markets between different economies. NAFTA, for instance, allows Mexico the ability to sell their products in the United States without any tariffs attached and the US the same ability in Mexico.
Not having tariffs is great for businesses that export because it opens new markets and increases revenues. This leads to job creation. But it’s not so great for businesses that have new foreign competitors importing cheaper goods. This leads to job losses. Overall, experts tell us that free trade is a net gain for America because it creates more jobs than it loses.
There are three examples in recent history of supply side economic policies and how this pro-growth macro-economic theory has jump started severe recessions and led to years of economic growth. The proof of its effectiveness can be seen even with all the smoke and mirrors put up by big government liberals.
Supply side economists believe that if you put the capital that already exists back into the hands of the taxpayer and decrease government regulation that it will result in greater economic activity, more business investment, and more risk taking by entrepreneurs. This will then lead to a growing economy with more tax revenue and more job opportunities with ever increasing wages.