President Trump has achieved two crucial economic goals since he took office:
*He has reduced taxes and particularly he has reduced the business tax rate from 39% to 20%. This is a major step forward in stimulating the American economy.
Lower tax rates always help an economy. Nations, and states, with high business tax rates generally have stagnant economies since businesses can move to nations and states with lower rates or they can decline to invest further in high-tax nations/states.
*He has made major cuts in regulations including zealous ‘green’ laws that have been thwarting the economy for decades. President Trump can repeal regulations by executive order and without congressional approval since regulations are imposed by federal agencies like EPA and are not laws passed by Congress.
There are two other critical things that the president must do to get our economy back on track:
*He must increase the number of manufacturing jobs by the millions. Manufacturing is the prime ‘wealth-creating’ force in the economy. Manufacturing takes resources out of the ground, like iron ore – which has no intrinsic value – and converts the iron ore into steel which then is used to manufacture cars, washing machines, tractors, etc., that have a monetary value.
US manufacturing jobs peaked in 1979 at 19 million. Today, with a much bigger population, that number is just 12.5 million. So we are producing much less wealth with a much larger population. This is why the middle class has shrunk so much.
President Trump is making a good start at increasing the number of manufacturing jobs. This must continue for at least 10 years to start to get our national prosperity back and to reinvigorate the middle class.
*Finally we need to significantly reduce our national debt in what is called the Debt-to-GDP ratio. This is perhaps the most critical number in our economy. This is the amount of our national debt compared to the annual wealth production of our economy (GDP or Gross Domestic Product).
This could be compared to the size of your debt in relation to your income. For instance if you owe $3,000 a month for your bills but earn $6,000 a month then that is a debt ratio of 50%. This leaves you lots of extra money to spend or save, which is a good thing.
If your bills are $6,000 a month and you earn $6,000 a month then that would be a ratio of 100%. Obviously nobody wants to have a high debt ratio. We all know that debt is a bad thing that restricts what you can do with your wealth and your life and can ultimately crush you.
Today our national economy is listed at a GDP of $20.66 trillion annually. And today our national debt is $21.52 trillion. This is a Debt-to-GDP ratio of 104%
In real terms this means that US taxpayers shell out more than $500 billion every single year just to pay interest on the debt, but not to pay off any of it.
104% is not a good number; it is way too high. Greece collapsed at 170%. Japan has the highest ratio of the industrialized nations with a whopping 253% debt. That is why Japan has been in a severe recession since 1990 when its real estate market collapsed.
At the end of George W. Bush’s presidency in 2009 the US national debt was $10 trillion in a $14.7 trillion annual economy or a 68% Debt-to-GDP ratio. But 60% is considered the maximum ratio that still allows for good economic growth.
When president Ronald Reagan left office in 1989 the ratio was a mere 51%. That is why the ‘Reagan boom’ of the 1980s continued to expand through the 1990s; there was plenty of capital around for investment. Today much of that capital goes to pay off the national debt.
Imagine if we had that $500 billion every year to invest in new jobs. That would be a very good thing for the economy.
Under Obama the debt ratio went from 68% to 105%. Thus our 104% debt ratio marks the first time since 2001 that the national debt ratio has come down. This explains why the economy was so stagnant under Obama, on top of other causes like high taxes and regulations and a loss of manufacturing jobs.
So president Trump is starting to cut the debt ratio. One way is to cut federal spending on welfare, food stamps, ‘green’ subsidies and myriad other handouts.
High salaries and pension costs for federal workers also push up the cost of the federal government. That is why president Trump is seeking to cut the federal workforce through ‘attrition’, i.e., when a worker retires he/she is not replaced.
But liberals have made so many people dependent on federal dollars that this spending is hard to cut, even among Republicans. For instance public TV and radio get $440 million annually in federal funds. Why? That subsidy should be eliminated.
Another way is to cut wasteful military spending like the disastrous Iraq War entered into by Republican president George W. Bush which cost taxpayers up to $2 trillion. The Bush war in Afghanistan has probably cost another $2 trillion.
The other major way to reduce the debt ratio is to encourage economic growth so that the economy grows faster than spending, i.e, we “grow out of” the debt. This is why the ratio under Trump has actually fallen for the first time since 2001; because the economy is growing faster than it has in more than 10 years.