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Trump budget shifts income to upper class: it’s a good thing for all of us

Written By | Mar 19, 2017

Cartoon by Branco. Reproduced by permission. (See link below)*

WASHINGTON, March 19, 2017 — Outspoken critics of President Trump’s policies, including liberal public-policy professor and former Secretary of Labor Robert Reich, object that Trump’s policies will shift income from the lower class to the upper class. Looking at the numbers, it is easy to make that correct conclusion. But this is actually a good thing, not a bad thing, for the vast majority of Americans.

Here’s why.

The Obama administration did just the opposite. His policies shifted income away from the wealthy and toward the lower classes. Obama raised taxes on high-income earners by 10 percent, which meant for every marginal $100 earned, Federal income taxes rose from $36 to $39.60. Obama also raised the capital gains tax rate by a whopping 58 percent, so that for every $100 of capital gain, federal taxes were raised from $15 to $23.80. At the same time, Obama, gave low-income earners more food stamps, more welfare, and free healthcare.

Obama’s policies represented a massive shift of income away from the people who earned it and toward the people who did not. The result was that low-skilled workers had no incentive to work. By the end of Obama’s administration, the percentage of adults participating in the workforce had fallen to 62.6 percent, down from 66 percent when Obama entered office.

Obama’s big increase in tax rates for the upper class meant that there was less capital being reinvested back into the economy. Since there are two basic inputs into the economy, labor and capital, and since both inputs declined during the Obama administration, it is no wonder that the economy stagnated, resulting in subpar economic growth during his eight years in office.

Obama is the first president to have served his entire term in office without achieving at least one year where economic growth reached 3 percent. In fact, 2016 marked the eleventh consecutive year of growth under 3 percent, the longest slow growth period in U.S. history.

Trump wants to implement changes in economic policy to achieve at least 4 percent growth per year. He is copying the successful policies of President Reagan. In 1984, just three years after the severe Carter recession ended in 1981, Reagan’s policies pushed annual economic growth to an astonishing 7.3 percent.

Yet Reich, like most liberal Democrats, says that Trump’s policies must be resisted; Trump’s “new budget comes down especially hard on the poor.” Trump’s budget will “mean big cuts to programs like food stamps and Medicaid (at a time when the U.S. has the highest poverty rate among all advanced nations.)”

Reich admits that the poverty rate rose significantly under the Obama administration’s economic policies. Prior to the recession in 2008, the U.S. poverty rate was 12.5 percent; after Obama implemented his policies, the poverty rate jumped to 15 percent. Even after his administration’s economic recovery, that rate is still near 14 percent.

Trump’s policies are geared toward allowing more people to keep the income they have earned while providing incentives and opportunities for all Americans to earn their own income rather than relying on government funds, which, of course, are really taxpayer-provided funds.

Trump has made economic growth the number one priority for his administration. To achieve high rates of growth, Trump’s policies will increase the input from both capital and labor. He will accomplish this by reducing tax rates for all Americans, especially the over-taxed high-income earners. This will increase the amount of new capital available to the economy.

Trump will also reduce spending on social programs like food stamps and welfare. Doing that, coupled with the higher GDP growth rates, will provide incentive and opportunity for all Americans. This should result in an increase in the labor force participation rate, a decrease in the poverty rate, an eventual decrease in government spending, an increase in tax revenue, a reduction in the budget deficit and a reduction in income inequality.

Democrats will complain that Trump’s budget will give huge tax breaks to the wealthy while depriving the poor of social programs and health care. And they are right. Trump’s policies will allow income earners to keep more of the income they earned and will force those who can support themselves to do just that.

While there may be some issues during the Trump administration’s transition back to the principles that made this country great, Trump’s budget and his overall policies are putting America back on track.

And that’s a good thing.

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

Michael Busler

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.