Finally: We look forward to an improving U.S. economy in 2017

America's current run of economic stagnation is likely to be broken in 2017 by Republican-led pro-growth, low tax policies.

Cartoon by Branco. (Republished with permission. See below)*

WASHINGTON, January 1, 2017 — Real economic growth in 2016 will come in below 3 percent, extending America’s run of low-growth years to a grim 11. That is the longest period of economic stagnation in our nation’s history. Even in the 1930’s during the Great Depression, there were actually three years that saw America’s economic growth far exceed 3 percent.

Our current run of economic stagnation is likely to be broken in 2017. That will prove emphatically true if President-elect Donald Trump can quickly implement his economic policies.

Last year at this time, there was considerable worry among economists that the U.S. might slip back into another recession. The lackluster recovery that began after the deep, Great Recession, which ended in mid-2009, was already in its seventh year and showing signs of fatigue—understandable, given that the average post-World War II recovery/expansions lasted about six years. More evidence for a pending recession: economic growth in the first half of 2016 averaged less than 1 percent, so it indeed appeared that the American economy had begun to slow.

But growth in the third quarter of 2016 picked up significantly to a rate of 3.5 percent. Fourth quarter growth will likely be somewhere in the 2.5 percent range, making the growth rate for the entire year average around 2 percent, giving economists and this country’s downtrodden middle class some cause for optimism in 2017.

A higher rate of economic growth is essential to our economy. High growth reduces unemployment, raises wages, reduces government spending on social programs, increases tax revenue to all levels of government, increases personal incomes and provides expanded opportunity for everyone. President-elect Trump says he wants to increase the U.S. growth rate to at least 4 percent, about twice the average of the last decade.

He is unlikely to hit that number in 2017, but he may nail it in 2018 and in the years beyond. He will do so by setting policies that encourage growth rather than attempting to solve perceived social injustices without regard to how that will be paid for. Raising tax rates for high income earners, piling on burdensome regulations—81,640 pages of them in 2016 alone—raising minimum wages, requiring health care insurance for all employees and making it easier for people to sustain themselves without working have all contributed to the current moribund growth rate of our economy.

In the end, however, all this wasted money and effort did nothing to cure perceived social injustices, which, if anything, grew worse under the Obama administration.

Donald Trump and the Republican-controlled Congress should act quickly to put strong pro-growth policies in place. They should repeal and replace the Affordable Care Act (Obamacare) with a new law that will gradually be phased in to avoid personal and market disruptions. But once the new healthcare policy is put into place, businesses will know with certainty what their labor benefits costs will be, making planning for the future considerably easier and less fraught with risk.

The Republicans will also reduce tax rates for all Americans. For the middle class, the tax cut will result in an increase in consumption that will drive up total demand in the economy. The tax cuts for the higher income earners will result in an increase in investment capital available to businesses old and new for expansion. Finally, as Trump cancels many of Obama’s burdensome executive orders, job- and profit-sapping regulations will largely be eliminated.

In short, the incoming administration’s tax cut policies will lead to high growth with little inflationary pressure.

To keep America’s already outlandish budget deficit from increasing, Republicans will look to initially cut government spending primarily by renegotiating government contracts, freezing the number of workers employed by the Federal government and eliminated wasteful programs.

How much American economic growth increases depends upon how quickly these new policies can be enacted. But even the sight of Congress actually discussing tax cuts and pro-growth economic policies after eight years of profligate spending and endless borrowing will lead to more consumer confidence, which, in turn, translates into more consumer spending. The best guess is that the new tax law or laws will pass Congress by mid-year and may be made retroactive to January 1, 2017.

The lower and less progressive our tax rates are, the faster our accelerated economic growth will occur. Although this is a politically difficult concept for many, the Republicans should be able to pass a tax cut law that will accomplish these growth goals primarily by simplifying and reducing the current tax rate structure.

So here is the forecast for 2017: Economic growth in the 3½ percent range, inflation in the 2 percent range, the unemployment rate falling to about 4.5 percent—but with that number now based on a greater percentage of adults returning to the labor force.

On the negative side (depending on how you look at it,) interest rates will rise by about one full percentage point, gasoline and other oil-based products will be more expensive and those who have been living off of the government’s social programs will have to learn to support themselves.

In other words, we will return to good economic times, something we haven’t seen in more than 10 years.

*Cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection.

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