President Trump is already set to move decisively on the economy than his predecessor, but he must scale huge hurdles to accomplish 3 to 4 percent economic growth. Why? Because radical policy changes will be required. And that's tough to do even in this era of aggressive executive orders.
House Republican leaders are working on a corporate tax reform plan that will close loopholes, lower rates to internationally competitive levels and shift part of the tax burden onto imports. Their plan has a decent chance of winning enough bipartisan support in the Senate but much more needs to be done.
Still many large businesses, and most small ones, are organized as limited liability corporations and pay taxes through the personal tax code—after corporate tax reform they would be saddled with effective rates above 40 percent while their corporate rivals pay half that rate or less.
Congress only has so much tax writing bandwidth, and personal tax reform may be booted into next year. Also, Treasury Secretary-designate Steven Mnuchin has stated that upper income individuals will not see a reduction in their overall tax burden but that they pay more than 80 percent of the personal income taxes. Hence it remains a puzzle as to how taxes can be meaningfully cut to stimulate growth.
Whenever and whatever Congress ultimately decides, genuine tax relief will require bigger deficits. Those are an anathema to many Republicans and in any case don’t guarantee growth.
President George W. Bush slashed personal income taxes, President Barack Obama expanded entitlements and both relied in some considerable measure on bigger deficits as opposed to pruning spending elsewhere. Yet, each presided over moribund recoveries.
Trade deficits with China and on oil directly subtract $500 billion annually from the demand for American made goods and services, kill millions of jobs, stifle R&D and tax growth.
Confronting China on trade with a 45 percent tariff alone won’t get Beijing to stop undervaluing its currency, subsidizing exports and cease blocking market access for American-made goods and services. It can push back by harassing U.S. companies with operations in China and imposing new barriers on U.S. products, and more broadly by squeezing Taiwan, upping the ante on militarization of the South China Sea and further enabling North Korea.
Trump must gird for a broad crisis with China, deploy the full range of America’s geopolitical and economic assets and compel Beijing to reckon with the fact that their shaky economy cannot withstand an all front confrontation with the United States without risking the Communist Party’s grip on power.
Energy and Interior Departments committed to opening up drilling in the eastern Gulf and off the Atlantic and Pacific Coasts—and ending the endless federal harassment of shale producers—could make America energy independent. However, as with many other issues, the lack of 60 Republican votes in the Senate will require guerrilla warfare to accomplish the results American voters deserve for awarding Trump the presidency.
On the supply side, it’s a lot more expensive to start a business and make things in America than it was in the 1980s and 90s, because of the growth of the regulatory state. Just compliance with labor market, health care, financial, environmental regulations and the like require hundreds of thousands of employees and cost businesses billions of dollars.
Imposing an efficacy test on regulations—requiring just what is absolutely needed to accomplish legitimate goals for protecting workers, the environment, consumers and financial stability, and then jettisoning the rest—should be the overarching objective as Trump’s cabinet goes to work at Labor, EPA, Treasury and elsewhere in the far flung federal regulatory apparatus.
A good deal of what Obama imposed was by fiat—executive orders that can now be repealed. However, he also imposed overly aggressive and burdensome regulations established under statutes, and those are more difficult and time consuming to nix.
Just as the law required the Obama administration to publish and take public comment on proposed regulations before imposing new rules—and then endure legal challenges from businesses and Republican state officials—the Trump administration will have to repeat those steps and face litigation from environmental groups, labor unions and Democratic governors.
All can be axed or reshaped by congress, but the Trump administration can expect a pitched battle from progressive Senate Democrats dedicated to remaking the American economy in the low-growth, high unemployment model of continental Europe.
After losing the presidential election, muffing the opportunity to capture the Senate and managing to hold only 16 state governorships—not to mention their minority standing in the House and most state legislatures—we likely won’t be hearing Obama pontificating on the sidelines that elections have consequences. Instead, we can expect the only remaining consequential Democrats—those who can filibuster against the popular will in the Senate—to rely on the 60 vote rule to try to run out the clock until the 2020 presidential elections.
In the end, Republicans in Congress may have to resort to a grand budget reconciliation bill—or for their senators to reluctantly vote to suspend the 60 vote rule—to push through a panoply of reforms, and Trump will have to marshal public support for radical measures to overcome a barrage of criticism and protests from liberal politicians and the media.
Bigger than his vision and knack for picking competent executives will be his salesmanship.
America’s first dealmaker is not a man inclined to small deeds, and these will be the measure of his presidency.