When Morning Dawns Again in the American Economy
October 26, 2017
Unsustainable government spending drives both taxes and debt.
The budget resolution sets the spending architecture for the fiscal year. The House version provided for $200 billion of enforceable mandatory spending reductions over ten years and balanced within the decade.
The Senate amendments gut these provisions, squandering the one opportunity Congress has each year to bring mandatory spending under control -- taking us another year closer to a sovereign debt crisis. This is tragic and I condemn it in the strongest terms.
The Senate, though, has retained just one key provision from the House budget. It makes tax reform possible this year. Tax reform is essential to economic growth, and economic growth is essential to confront our debt.
Many are alarmed that it provides for $1.5 trillion of additional debt – but this is solely due to the Senate’s rules that require tax cuts to be scored ONLY as revenue losses without taking into account economic expansion.
During the Obama years, our economy grew at an average of 1 1/2 percent annually – about half the average rate since World War II. Reagan averaged 3 1/2 percent. Reagan did this by reducing the tax burdens that were crushing our economy. He slashed the top income tax rate from 70 percent to 28 percent --- and income tax receipts nearly doubled because of the economic expansion he unleashed.
Taxes driven by spending are the greatest threat to our economy today and debt driven by spending is the greatest threat to our future. Controlling spending is currently impossible in the Senate. So, it’s obvious that we can’t balance the budget and reduce our debt without significantly increasing economic growth; we can’t increase economic growth without tax relief; and we can’t get tax relief without the provisions in the Senate budget.
Arthur Laffer, architect of the Reagan tax policy, forecasts that the corporate tax reform alone will increase GDP growth at a rate that should generate a first-year jump of 5 percent, settling down to an annual growth of 2.6 percent over the decade. This will add $5 trillion to the American economy and directly increase revenues to all levels of government by between $1.8 trillion and $2 trillion.
We tried a static approach to tax policy during the Obama years. The economy stagnated and the debt doubled.
I remember what it was like in the Reagan era. Wages were rising, opportunities for better jobs were everywhere, there was a sense of optimism that comes with prosperity and abundance. When we abandoned these policies, we lost that prosperity to a decade of despair.
I want my kids to know what that sense of relief and optimism was like – what it feels like when morning dawns again in the America economy. This resolution starts that transformation.