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If Trump Does This, We Will Win

Economics / US Economy Nov 28, 2016 - 05:48 PM GMT

By: John_Mauldin

Economics

No matter who won the presidency, the economic way forward was not going to be easy. The national debt and deficit must be brought under control, or we will face a crisis.

Avoiding that crisis—even if it is 10 years out—is important. The solution doesn’t have to be implemented all at once. But there has to be a clear trajectory along the lines of the Clinton/Gingrich budget compromises. Those gave us balanced budgets and deficit reduction.


Unproductive debt is a limiting factor on growth.Ten years ago, it wasn’t that big a deal. Today it is.

So let me offer a program that I think might actually solve the deficit and debt problems. At the same time, it would jumpstart the economy and pay for health care, Social Security, and other crucial government spending. And it will do so with the least damage to the body politic and economy.

This program is something that I think is politically possible. By that, I mean it can gain bipartisan support, which will be needed for certain portions of what I’m suggesting. It would also be a massive stimulus to the economy—boosting jobs, new business creation, and entrepreneurial activity giving a boost to jobs, new business creation, and entrepreneurial activity.

Let me again restate for the record: any one of these suggestions—taken apart from the rest of the body of actions—might be useful but would not be sufficient to ensure recovery and a balanced economy.

What should Trump do?

  1. Cut the corporate tax rate to 15% on all income over $100,000. No deductions for anything. Period. A 10% tax rate on all net foreign income, with allowances for taxes paid.
  2. Cut the individual tax rate to 20% for all income over $100,000. No deductions for anything. No mortgage deduction. No charitable deductions.
  3. Some form of a value-added tax (VAT) that would specifically pay for Social Security and health care.
  4. Eliminate Social Security funding from both the individual and business side of the equation and take those costs from the VAT.
  5. An Infrastructure commission that would authorize federally guaranteed bonds for cities, counties, and states.
  6. I would instruct every cabinet member to find and eliminate 5% of the rules and regulations within their purview. That’s 5% every year for four years.
  7. Trump will have two immediate appointments to the board of governors of the Federal Reserve. He will have another two in another year, giving him four out of the seven governors. We need a Federal Reserve that is more neutral in its policy making. One that understands that the role of the Fed should be to provide liquidity in times of major crisis and not to fine tune the economy. This will do much to balance out the future.
  8. The value of the dollar relative to the currencies of other countries comes under the purview of the Treasury Department, not the Fed. And I can imagine a time when we will see some strange new policies being suggested because of the competitive pressures exerted by a stronger dollar.

Why this path to rebuild the economy?

The central advantage of the entirety of my proposals is that they offer a path to finance the needs of the country and, at the same time, allow a balanced budget.

Let me be clear. We must get the debt and deficit under control. By that, I mean that we at least bring the annual increase in the national debt to below the level of nominal GDP growth. If we don’t, we will simply postpone an inevitable crisis.

We can have growth and create good jobs. But it’s not going to look like the 1980s and 90s. Our rebuilding of the economy will have to take adifferent path… and a more challenging one in many respects.

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