WASHINGTON, August 11, 2017 – Despite Congress’ inability to pass health care legislation and tax reform, President Trump is taking actions that are stimulating the economy. At a time when most economists are predicting a recession, Trump’s economy is starting to grow much faster than it has in the last 10 years.
Trump and members of his party campaigned on the promises to repeal Obamacare, reform the counter-productive and burdensome federal income tax code and create an environment where business can flourish so the economy can grow. But Congress, the media, all Democrats and some Republicans have tried to stop the President from implementing the policies that American voters want.
Republicans in Congress have, so far, failed miserably on health care reform. The debate lasted so long that there was no time to discuss critical issues like the budget and the debt ceiling. Now Congress is in recess.
Healthcare reform would have removed burdensome taxes and eliminated costly mandates placed on even the smallest of businesses. That would have given businesses more money to invest so they can expand and hire more workers.
Congress failed to even discuss Federal income tax reform. If the tax code became flatter and all rates were lowered, consumers would have more money to spend and invest. That would increase consumption and provide more capital for expansion. But nothing has been done. That makes it easy to see why a results-oriented businessperson like President Trump wants to replace the people who do not achieve results.
Consumer spending accounts for about 70 percent of GDP. So, to accelerate growth, the consumer sector is usually the best place to start when it comes to taxation. But, since there has been no tax cut, Trump has had to convince consumers to spend more.
Much of the spend versus save decision, however, relies on consumer perceptions. In other words, individuals are more likely to spend when they feel confident about both the present and the future. Since most of what the mainstream media writes about the President casts a very dark shadow on that future, Trump had to instill confidence in the future on his own.
He first reasoned that consumers feel positive if they could see opportunity ahead. Opportunity comes from businesses expanding and offering jobs. Trump convinced the business community that he was going to create an environment that encouraged them to grow.
The business community still believes that Trump will fix the healthcare mess and lower the corporate tax rate perhaps to 15 percent. That has already caused businesses to think about expansion right here in America. That increased optimism about future profitability has lifted the stock market by almost 25 percent since election night, 2016.
That means Americans who holds stock in their retirement accounts witnessed an approximately similar increase in the value of those accounts. In addition, because of the low supply of houses and the increased demand, housing prices are rising. The demand is greater because of the optimism that a Trump economy has created.
With retirement accounts and housing prices trending higher, consumers feel wealthier. Because of this wealth effect, they tend to spend more. The confidence and optimism that Trump has instilled in the American economy, when taken together, encourages consumers to spend.
Given the relentlessly negative reporting on Trump, consumers may occasionally lose sight of the bigger picture. This could lead to a loss of confidence and less spending, so we occasionally see consumer spending numbers fluctuate.
When Congress comes back from its August recess, many critical issues will still be facing them. Fiscal Year 2018 begins on October 1, so a budget has to be passed by September 30 or the government could shut down – a familiar issue in recent years.
The Federal government will once again reach the limit of its borrowing power in early October, although there are a few things the Department of the Treasury can do on its own to affect that date. Still, Congress will have to raise the debt ceiling or default on the national debt. Waiting too long to resolve this issue could have a negative effect on the Federal government’s credit rating, as it notably did in 2011.
Congress must also pass a new healthcare law, reform the income tax code and pass infrastructure legislation. It will be interesting to see how much of this backlog that Congress can get through, given the existing leadership and party balance.
Businessperson President Trump knows how to get things done. Even though economists who study business cycles were predicting a recession this year or next, after Trump’s victory things seem to have changed. Because the economy still has not fully expanded from the last recession and because Trump is creating confidence, the economy this year could actually witness growth above 3 percent for the first time since 2005.
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