WASHINGTON, November 6, 2014 — The American people overwhelmingly rejected the policies of the Obama Administration on Tuesday; they elected Republicans to a majority in both the Senate and the House of Representatives. If the Republican Congress can enact its agenda without having the President veto their legislation, economic growth will soar.
For the past six years, the President and the Democratically controlled Senate have insisted that they are concentrating of growth policies, but that is untrue. Their policies were geared to help lower-income earners at the expense of the middle class, business and economic growth. Higher tax rates on dividends and capital gains, increases in welfare and food stamps payments, the Affordable Care Act, which helps the low income uninsured while clobbering the middle class, and a push to raise the minimum wage, which may benefit a few percent of the population but results in higher prices and poorer service for the rest of us, are some examples.
Why is growth so important?
Almost all of our economic problems would have been eliminated had the economy grown at a 4 to 5 percent annual rate rather than the 2 percent rate we have seen since the recession officially ended in mid-2009. From 1982 to 1986, which were the five years following the 1981 recession, economic growth averaged about 4 ½ percent.
With higher growth rates, more opportunity is available for all Americans. The unemployment rate falls dramatically and the labor force participation rate increases as more Americans want to take advantage of the new opportunities. Government spending falls as fewer people receive unemployment benefits, food stamps and welfare payments. Corporate profits grow faster, encouraging more investment in new technologies which results in new products that improve the quality of life for Americans. Tax revenue rises without higher tax rates because there is a larger taxable base.
Virtually every well-prepared American benefits from economic growth.
What will the Republicans do?
First they will likely pass an authorization for the Keystone pipeline to be built; that should receive support from the President. Since the environmental impact is negligible and the benefits great, this is a no-brainer. It will result in lower energy prices and perhaps additional exports so that the Europeans are less dependent on the Russians. It should also result in the creation of thousands of new jobs.
Almost everyone agrees that the corporate tax rate is too high. So is the tax which the President placed on funds earned outside of the country that business tries to bring back to the U.S. More than $2 trillion will come back once this counter-productive tax is eliminated.
The Dodd-Frank bill has crippled community banks and slowed lending to small businesses, which provide the majority of new jobs for the economy. This bill will be modified. Elimination would be better, but the President would likely veto that. Also changes will be made to the Affordable Care Act to again define full-time work as a 40 hour work week rather than the 30 hour workweek passed by the Democratically controlled Congress and signed by Obama.
The Republicans will likely want to reduce the federal budget deficit. Now that they control both houses of Congress, they control spending. The problem is that when spending reductions are suggested, the President will say that the Republicans are trying to shred the safety net, or deny health care to some poorer Americans, or deny birth control to women. The Republicans will likely tread softly when considering spending reductions, although some members will be very insistent. And that’s where a conflict could arise.
Some Republican members of Congress will take a stronger view to reduce spending. This may not the best time for that. Spending will have to be more gradually reduced and done at a time when Republicans control the White House. Waiting until 2016 is a better idea.
In 1985, President Reagan said “I’d like to speak to you tonight about our future, about a great historic effort to give the words ‘freedom,’ ‘fairness,’ and ‘hope’ new meaning and power for every man and women in America.” He then set the stage and told Americans who have a dream, to “go for it.”
The new Republican Congress will attempt to set the same environment and encourage all Americans to “go for it.” When we do, the economy will soar.