The national economy is slowing in the late innings of an unprecedented 10-year economic recovery.
An August survey of 226 economists conducted by the National Association for Business Economics, revealed that nearly 40% believe the U.S. will enter its next recession in 2020.
I hope not. Recessions disproportionately hurt working-class households that can least afford a layoff. And the 2009-2019 economic recovery disproportionately enriched the already affluent, including investors who saw the S&P 500 rise by 300% since the 2008-2009 bottom.
Real GDP growth, accounting for inflation, peaked at 2.9% in 2018, the year after the Trump tax-cut stimulus, the same as 2015. It will slow to 2% in 2020 from 2.2%, according to the December forecast of the Open Market Committee of the Federal Reserve.
Meanwhile, President Donald Trump and Congress are adding $1 trillion annually in federal deficits. The total debt equaled about $65,000 per American in 2018. So much for Trump’s campaign promise to pay off the debt.
The stock market took off as corporate profits were juiced by the 2017 tax cuts. The 2017-2018 tax cut, pushed through a Trump-friendly Congress that failed to kill the Affordable Care Act in 2017, have proved the biggest bonanza for huge corporations and the wealthiest.
The 2017-2018 tax cuts didn’t work, according to the independent, nonpartisan Congressional Research Service.
“Investment did not boom and workers will not see the promised [$4,000] bump in pay,” wrote Forbes contributor Christian Weller. “Instead, the federal government incurred massive deficits while wealth inequality increased to its highest level in three decades.
“… President Trump touted the benefits of Tax Cuts and Jobs Act of 2017 as game-changing. Showering the richest Americans and corporations [with] even more money was supposed to lead to more business investments. … Businesses did not use the windfall … to invest in new machines, technology, office parks and manufacturing plants. Without an acceleration in business investment, though, American workers will not see the bumps in pay promised over the longer term. The richest Americans got even richer while corporations used a lot of the new money to keep shareholders happy. … There was no faster growth and more revenue to offset the hundreds of billions lost each year to the … wasteful tax cuts.”
Meanwhile, although working-class wages are bobbing up somewhat, they still buy a lot less than they did 40 years ago.
I’m worried. The middle class is struggling as the top 10% get richer. There are steps that would strengthen our economy, broaden prosperity and ensure a better future for more folks:
• Boost renewables. The fastest-growing, good-job industries in rural Minnesota and urban America involve a greener, low-carbon economy, from wind and solar power to innovative software that helps us conserve energy and be more productive. The renewables industry, despite recent cuts to tax incentives, will prosper because of public and business support and because they are economical investments that promote health.
• Raise the federal adult minimum wage from $7.25 to $10 by 2022. Minnesota is already at $9.86. Many states lag.
• Enact a working-class tax cut. They buy stuff that stimulates the economy, not government bonds to finance our malignant debt.
• Cut the Social Security tax on wages; offset the tax cut by extending it to all incomes, not just wages up to $133,000. The rich get richer off capital and investments.
• Bail out Medicare, which is in danger of insolvency, partly with a small tax on investment income and gains. After all, the affluent live longer than working stiffs and the poor. They benefit much more from longer runs of maximum Social Security and federally subsidized Medicare and Social Security payments.
• Add a carbon tax of $25 per metric ton on greenhouse gases, such as from oil, natural gas and coal. This can raise several hundred billion annually, pledged to federal debt retirement. Raise the earned-income tax credit to protect the working poor and low-income households who otherwise would pay a disproportionate energy penalty. The U.S. should be the global leader to a renewable-energy-driven economy by 2050.
• Reduce mortgage-interest deductions over five years to a maximum of $5,000 annually. That’s billions in tax savings and less housing inflation.
• Increase the federal gas tax over five years from 28 cents to 38 cents. Dedicate the funds to road maintenance and mass-transit investments. Protect working-class households with a higher earned-income tax credit.
• Eliminate, finally, the “carried interest” tax break on gains for hedge and private-equity fund managers who pay a capital-gains tax rate under 25% instead of income taxes of up to 37%. It is essentially income from investors and investments.