U . S . F orecast
Other tax policies include allowing for full expensing of plant and equipment for U.S.-based manufacturers and allowing small businesses to pay a 15% rate on business income instead of paying the personal tax rate on this pass-through income. The fiscal impact of such policies aside, these changes and simplifications of the tax system should work to boost economic growth in the U.S.
Regulatory Reform
Readers of previous issues of our U.S. Forecast publication will recall frequent discussions of how the upward surge of the regulatory burden in the U.S. has weighed down on economic growth, productivity, and job creation over the course of this historically weak expansion. The roll-back of this regulatory morass that has flourished over the past two administrations is in my mind potentially the most powerful of all the incoming president’s proposed economic policies. We have written extensively on two of the largest pieces of legislation signed into law in 2010, namely the Affordable Care Act and the Dodd-Frank financial regulatory reform law, and the adverse consequences of these laws for the economy. The policy uncertainty that we have created via Dodd-Frank, the Affordable Care Act, and thousands upon thousands of pages of new rules2 and regulations that have been written— with many more yet to be written—have weighed down on economic growth in this recovery. The promised repeal of most of these two laws will free the economy from the deluge of red tape that has entangled and hobbled economic growth. It has not just been these two major pieces of legislation that have created this growthasphyxiating regulatory environment; there have been tens of thousands of other rules that have been foisted upon our economy as well. Since 2001 through the end of 2015, 47,661 new rules have 2 http://www.heritage.org/research/reports/2016/05/red-tape-rising-2016 obama-regs-top-100-billion-annually 6
U.S. Forecast | November 2016
been handed down by the federal government touching virtually all sectors of our economy. The Trump administration is calling for a complete regulatory overhaul with the removal of all job-killing and needless regulations. The benefits such an overhaul could reap for the economy could be quite significant; the campaign’s website claimed that overregulation costs the economy $2 trillion a year and reduces wealth per household by $15,000. How the campaign estimated these effects is not explained, but in our August 2015 U.S. Forecast 3 we discussed an academic research paper that estimated the aggregate impact of federal regulation on economic growth and productivity on the U.S. economy during the period 19492005 and the results were eye-opening. Real GDP in 2005 was $15.1 trillion, but the paper estimated if regulation had stayed at 1949 levels that figure would have been an eye-popping $53.9 trillion. Rolling regulations back to 1949 levels is neither desirable nor feasible, but the paper does demonstrate the large negative consequences that regulation has on the economy, and the plan to roll back this burden will generate significant benefits for the economy.
Infrastructure/Military Investment
The incoming administration has proposed a $1 trillion infrastructure investment that would be accompanied with expanded military spending that creates a two-barreled fiscal stimulus when coupled with the proposed tax cuts. Whether congressional fiscal hawks would get on board with such deficit and debt-expanding policies remains to be seen. The $1 trillion infrastructure plan is nearly a tenfold increase in the level of infrastructure spending that was included in the American Reinvestment and Recovery Act of 2009 (aka the stimulus plan) implemented by the Obama administration.
3 https://issuu.com/ucf business/docs/us-forecast-august-2015