So How Are You Doing?Submitted by Alloy Silverstein Financial Services, Inc. on December 17th, 2018
No, this isn’t Joey Tribbiani (remember Friends?).
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In November 2016 I listed some of the economic challenges that then President-Elect Donald J. Trump would need to address. He had promised that GDP could reach 3% and a whole lot of other things. So, how is he doing so far? Here is a report card of sorts on what has, or has not, been accomplished economically.
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. We are still waiting for a comprehensive plan from Congress. It is amazing to me that one of the few things they all agreed on hasn’t happened yet. Not sure why. FAIL.
TAX STRUCTURE CHANGES
We were the country with the highest corporate tax rates in the developed world according to, well, everybody. 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. A plan to make it attractive to repatriate the overseas profits has returned about $465 billion of the total approximately (as it turned out) $3 trillion held overseas. The tax ended up being 15.5% on cash, and 8% for noncash assets. The overall top corporate tax rate was cut from 35% to 21%. Unemployment rates for minority groups and all Americans are now at all-time lows and wages have risen. So the tax structure has become more business-friendly. SUCCESS.
President-Elect Trump also wanted 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. Done. GDP reached 3.5% in the previous quarter; and although each individual needs to evaluate the impact of the tax cuts for themselves, it certainly looks like it benefits the vast majority of tax-paying citizens. SUCCESS.
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.
GDP has grown. A new trade agreement with Mexico and Canada has been signed. Now we wait for the fun as China and Europe need to be sorted out. SO FAR, SO GOOD; BUT THERE ARE CERTAINLY SOME INDUSTRIES WHOSE COSTS HAVE RISEN.
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. John McCain, in my opinion, acted very immaturely and voted NO on ending this due to his personal issues with Trump. With a Democrat House, not likely that anything constructive will happen on this topic. One thing that has occurred is that President Trump has signed a bi-partisan bill that will begin the process of lowering prescription drug prices. Also, he is pushing for small businesses to be able to join together so that they can purchase health care plans similar to what large companies can do. FAIL ON ACA, PROGRESS ON OTHER AVENUES.
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. Increase in spending happened, but other less desirable spending was attached to the bill so the President reluctantly signed it. SUCCESS ON SPENDING FOR DEFENSE (but more unnecessary expenses attached).
THERE IS STILL A MASSIVE NATIONAL DEBT
All of these will have to be accomplished with the approximately $20 (now $21) 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. Debt isn’t going anywhere soon, and the rising rate environment certainly is of concern. This debt isn’t something that the President can reduce, only Congress can do that. I don’t think that they will.
As I ended this article in 2016 I end it today: 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
Note: The opinions stated are those of the author and no other associate/affiliation.