President-Elect Donald J. Trump now has his work cut out for him. Our country needs for him to be successful. Here is a very brief list of some things that he will be dealing with that will affect the currently anemic economy.
THERE IS STILL A MASSIVE NATIONAL DEBT
All of the following will have to be accomplished with the approximately $20 trillion national debt looming over the new administration. I don’t have room here to contemplate the intricacies of this debt, and/or how to handle it. However, it is clear that if rates rise much the cost to service this debt will cause increasing stress; and can give pause to anyone trying to do what is absolutely necessary for our economic well-being: grow the economy.
One thing that both candidates agreed upon is that the country’s infrastructure, much of which was built in the post-WWII boom, is aging to the point that something must be done to replace or repair it. If the Trump plan is put into place some estimate that the work could add about half a percentage point to GDP annually over the next five years.
TAX STRUCTURE CHANGES
We are the country with the highest corporate tax rates in the developed world according to, well, everybody. This has caused responsible corporate officers to implement inversions – transactions that allow US companies to merge with foreign firms to then pay lower tax rates in the other country. President-Elect Trump focused on bringing jobs back to the US, as well as the expatriated roughly $2 trillion of US earnings held overseas, through a lower corporate tax rate and (perhaps) a one-time 10% tax on the expatriated earnings. The lower tax rate move was implemented by John Kennedy and Ronald Reagan, with great economic success.
President-Elect Trump also wants to lower the personal tax rate. Since about two-thirds of the economy is you and me spending money, that might also help to produce growth that our country, and frankly the world economy, needs.
These changes would include, generally, utilizing some unused US influence when negotiating (or re-negotiating) trade agreements. I don’t expect the trade war that some envisioned, but I do expect that US interests can be better served if this is done properly, including a crack-down on US firms that move operations overseas. If we gain more jobs back and/or less of a trade deficit, then GDP will grow.
HEALTH CARE REFORM
Steep premium increases to the (Un)Affordable Care Act no doubt helped the Trump campaign. More importantly, these increases highlight the unsustainability of the ACA. The trick is to keep anything that was good about it, and dump the rest. It is likely that the pre-existing conditions coverage and the ability of children up to 26 years old to be on the plan will be maintained.
Even military people who supported Clinton note that our military has been dangerously depleted in the Obama years. Therefore, it is logical that a Republican Congress will join with a Republican President to rebuild the military. There is no doubt that such a build-up will generate multiplier-effect type of economic growth in the US. The only question is how much revenue will be generated from the above measures to pay for this necessary upgrade.
Personally, I am just happy that I can watch a sporting event on television and not see a political commercial.
by Ronald Donato, Jr., CFP®, MBA
Director of Financial Services