Voting for growth
By Dr. Peter Morici
Voters must shake up Washington if they want a more prosperous future.
Janet Yellen and the Federal Reserve have pronounced 2 percent annual economic growth — perhaps a bit less — the new normal. Factoring in labor force growth that implies 1 percent growth for productivity and pre-tax wages, hardly anyone is average these days.
Workers are supporting — through taxes for government benefits — more retirees and prime-age adults who choose not to work at all.
Earned income from wages and other sources continues to become less equal. New technologies — robots in warehouses, apps that replace taxi dispatchers and the like — are eliminating jobs and driving down wages for ordinary workers. Meanwhile, those with degrees from the most prestigious universities or with training in science, engineering and technology enjoy rising incomes.
History teaches that those technological advances should instigate a burst of investment and productivity, and higher incomes for all. However, poorly negotiated trade agreements, which open our markets to imports without comparably facilitating our exports, are driving investment offshore. And high corporate taxes and the explosion in new regulations are making investment in the United States more costly and less productive.
Jobs are being created in health care, higher education and banking, but too many of those are dedicated to complying with new federal mandates and regulations, as opposed to providing quality care, expanding enrollment in science and technology and financing start-up businesses.
Student loan programs permit universities to raise tuition and fees much more rapidly than even health care inflation without redirecting resources from liberal arts and general business toward science, engineering and technology. Many graduates lack even the most fundamental reasoning skills necessary to function in general managerial and administrative roles.
Income-based eligibility requirements for programs intended to ameliorate inequality — for example, the earned income tax credit, Obamacare subsidies and Medicaid, and more easily obtained Social Security disability pensions — impose high effective marginal taxes on lower- and even some middle-income workers and discourage them from improving their qualifications and productivity to become less dependent on government benefits.
Many immigrants bring skills in short supply in technology, medicine and among our entrepreneurial class, but many more drive down wages for less-skilled workers. To fully assimilate, often they require substantial public education resources that otherwise could be devoted to increasing the technological literacy of our indigenous work force.
Before liberals reading this jump from their seats with charges of xenophobia, consider how often public school leaders complain about the strains created by needs of students whose primary language is not English.
Even without further expanding social programs to even up incomes or assist young people with student debt, the federal deficit will soar over the next decade — at least until global capital markets determine the United States is about as credit worthy as Greece.
Hillary Clinton proposes even more of the same: higher taxes on the wealthy to pay for new and expanded benefits programs that will hardly encourage universities to reform or Americans to take more responsibility for being productive and successful.
The top 20 percent already pay 84 percent of income taxes, and effective marginal rates, including state and payroll levies, often exceed 50 percent. We have likely reached the limits of how much those folks can be taxed to pay for free college and subsidized child care without driving them to take their income offshore.
If working- and middle-class voters want more government benefits, one way or another they will be taxed more — further increasing disincentives to work and acquire skills.
Donald Trump is hardly an enemy of the welfare state, but he promises regulatory reform and would have to bargain with House Speaker Paul Ryan, who is dead-focused on entitlement reform to pay for his tax cuts and military spending. And policies for trade and immigration would not be what he proposes on the campaign trail — Congress also won’t let him rip up North American Free Trade Agreement or deport millions more illegal immigrants — but those would become more focused on fostering growth in America.
Neither candidate is attractive to many voters. However, electing Mr. Trump would shake up Washington with the potential to unlock growth, while Mrs. Clinton only promises more of the same and eventual national bankruptcy.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.