Trying to Figure out Which Candidate Has the Best Economic and Job Growth Policy? How About “None of the Above”?

The most important policy issue in the coming election is slow economic and job growth.  Yet neither political party or campaign has proposed a policy that represents an effective solution. 

It is not the “wage gap” that is the issue … it is the declining incomes in the middle class over two decades. 

•   Consumer spending has the single largest impact on economic growth, driving about 65%-70% of overall economic growth, and that requires growing middle class incomes.

• · Since middle class incomes have not grown for 20 years, we should not be surprised that economic growth has been lower than in other post-recession recovery periods. 

Nor are high taxes the key issue.  We currently have had the lowest tax rates in history since 2003.

• ·   Since the end of WW II, top tax rates have been consistently above 39% until 2003.  These were the years our current economy and national wealth were largely built. We have only a few years of economic growth with tax rates at or below 39%.
• ·   During those 50 years, we have multiple decades of economic growth, even with top tax rates as high as 90% from 1950-1962. 

Those 1950 tax rates enabled us to pay for the interstate highway system, the war debt, the VA bill and other benefits for veterans, and the Marshall Plan for Europe.    

• ·  Where would our economy and quality of life be today without those investments? 
• ·  If tax rates had been cut to stimulate more growth in the 1950’s and we carried that debt forward, we’d have much higher debt and interest service expenses today.

Cutting tax rates is no guarantee of economic growth. 

• ·  From a balanced budget in 1999-2000, we cut taxes in 2003 to the lowest level in the past 50 years, in the “hope” that this would stimulate economic growth to bring in more income to offset the decline in revenues from the tax rate cut. 
• ·  What happened, immediately, was that we created an annual deficit in the “hope” that future growth would pay for the investment.  The growth did not happen, and just 5 years later, we experienced the worst economic decline since the great depression.  

The best and most effective way to help grow overall middle class incomes is by sharing company profits with all employees. 

• ·   Companies should be incentivized to allocate a portion of the record profits they are earning to the employees, who are helping to drive the record profits companies are seeing.         
• ·   This approach would help increase the overall income of middle class employees without adversely impacting the profitability of a company, since it does not raise fixed expenses via higher fixed wages or benefits. 
• ·   Then, if profits are invested in expanding a business into new markets or products, hiring more employees, or supporting profit sharing programs to all employees on a reasonable allocation basis, those profits would see a very low tax rate. 
• ·   But, if profits are used to buy back a company’s stock, where most of the benefits of the 2003 tax cuts went, or to allocate bonuses or salary increases to the executive employees only, then those profits would see a very high tax rate. 

In other words, tax cuts have to be tied to the actions that benefit the economy specifically, in order for them to generate the benefits the economy needs to offset the income reductions.