They took the best growth picture in a decade and put us in danger of recession.
Why are so many key global leaders pursuing so many stupid economic policies?
As recently as January 2018, the International Monetary Fund issued one of its most upbeat economic forecasts in recent years, extolling “broad based” growth, with “notable upside surprises.”
By last month, the fund had sliced its forecast for expansion this year to 3.2 percent — a significant falloff from the 3.9 percent projection reiterated just six months earlier — and had pronounced the economic picture “sluggish.” American investors are more concerned; the bond market is sounding its loudest recessionary alarm since April 2007.
The deterioration in the economic picture is not the consequence of irresponsible behavior by banks or a natural disaster or an unanticipated economic shock; it’s completely self-inflicted by major world leaders who have delivered almost universally poor economic stewardship.
The trade war initiated by President Trump sits firmly atop the list of bad policies. But Brexit has tipped Britain into economic contraction. With European governments unwilling to pursue structural reforms, the continent is barely growing. President Xi Jinping of China has focused on standing up to Mr. Trump and solidifying his own power. After a promising start reforming the economy, India’s prime minister, Narendra Modi, has turned instead to oppressing his country’s Muslim minority.
None of this was necessary. As the January 2018 I.M.F. report indicated, the world economy was firing on all cylinders — “the broadest synchronized global growth upsurge since 2010” — as jobs were being added and inflation remained subdued.
Yes, Mr. Trump’s trade war and Brexit loomed, but amid hope that the former would prove empty and the latter would be softened.
Not so today.
Often against the recommendations of his more sensible advisers, Mr. Trump has implemented the country’s most protectionist actions since the 1930s. As a result, world trade has begun to fall for the first time in a decade, with noticeable economic impact. Last week, Goldman Sachs cut its already modest projections for fourth-quarter growth to 1.8 percent from 2 percent.
That’s a far cry from the “4, 5, 6” percent that Mr. Trump talked about just before his tax cut passed.Nor has that been Mr. Trump’s only misstep in economic policy. Instead of nurturing growth with important investments like a robust infrastructure program, Mr. Trump deployed his political capital to secure tax cuts that disproportionately favored business and the wealthy.
The “sugar high” they produced quickly wore off. And now, instead of developing better policies, the president has chosen to attack the Federal Reserve, whose independence is cherished by investors, business people and economists.
Boris Johnson, Britain’s new prime minister, abandoned his predecessor’s notion of a “soft Brexit” that would have maintained some ties with the European Union. Instead, he reaffirmed his promise that his country would leave the E.U. on Oct. 31 with or without a deal. The pound quickly fell to its lowest level against the dollar since 1985. (It has since recovered slightly.)
Then there’s China. By virtue of both its remarkably fast industrialization and its protectionist policies, the nation has long been a trade threat. But four years ago, the government issued its “Made in China 2025” economic manifesto, which put in writing China’s plans to attain a leadership position in key new sectors, including robotics, pharmaceuticals and aerospace.
The notion of China using its state power to take on important American and European industries instead of pursuing market reforms set off alarm bells across the political spectrum and provided a concrete underpinning for Mr. Trump’s trade confrontation.
Mr. Xi, rather than acknowledging China’s protectionist practices, has proved unwilling to accept a new trade agreement with effective enforcement provisions. That has raised doubts about whether China is seriously interested in reforming its unfair trade practices — keeping key markets fully or partially closed, using state subsidies to favor its companies, forcing American companies to transfer technology to China and the like.
Of course, at least in the world’s democracies, voters bear substantial responsibility for electing these inadequate leaders. The rise of populism as a reaction to disaffection about economic and social conditions has been well documented as a principal driving force.
Occasionally, good choices have been made, such as the election of President Emmanuel Macron of France. But even that has not led to progress; public support for Mr. Macron turned to opposition when he instituted the much needed policy changes that he promised.
Any chief executive officer who botched his or her job as badly as most of these leaders have would be fired. Let’s hope that voters come to that realization when given the chance.
The administration’s chaotic reversals on Obamacare could deprive millions of coverage.
Meanwhile, the administration’s latest budget, released in mid-March, stands behind legislation known as “Graham-Cassidy,” which was pushed by Republicans in 2017 but never won enough support to be brought to a vote.
The Trojan horse of health care reform, the proposal provides for relatively small initial cuts in federal funding and then huge reductions starting in 2027.
According to a Brookings Institution report, Graham-Cassidy would cost 32 million Americans their health insurance by 2027, just as full repeal would. That’s Donald Trump’s idea of a “beautiful,” “terrific” and “unbelievable” health care plan.
.. The administration’s recent decision to submit a brief in a Texas case asking the court to declare all of Obamacare unconstitutional was well publicized.
Slipping by almost unnoticed was Mr. Trump’s instruction last June to the Justice Department, which was defending the A.C.A., to argue instead that certain key provisions — notably, the requirement that Americans with pre-existing conditions be treated equally — be declared unconstitutional.
A win by Mr. Trump in this case could mean that nearly 20 million Americans would lose insurance, according to the Urban Institute.
Raise the capital gains tax and treat investment earnings like ordinary income... For starters, Ms. Ocasio-Cortez seems to be ignoring the burden of state and local taxes, particularly for residents of places like her hometown. For us New Yorkers, the top rate for those levies is 12.7 percent. And thanks to the 2017 Republican tax cut, it is no longer deductible, bringing her proposed top rate to 82.7 percent.
There are other, better ways to raise revenue — in particular, by increasing the tax rate on capital gains and dividends and closing loopholes.
.. At present, a beneficiary of long-term capital gains or dividends pays 23.8 percent of the profit to Washington. That’s already a good bit less than the 37 percent top rate on so-called ordinary income.
Among the justifications for taxing profits on capital at a lower rate than income from work has historically been that companies pay taxes on their profits, so taxing shareholders on their gains represents a form of double taxation.
But the 2017 tax cut legislation reduced the tax rate on corporate profits to 21 percent, from 35 percent. So if taxes on capital gains and dividends were raised by those 14 percentage points, we capitalists would be no worse off — and American companies would still be more competitive globally, the theory behind reducing the corporate tax rate.
.. Evaluating the revenue raised by any of these proposals is a murky exercise. Any big increase in tax rates would lead Americans to try to game the system by changing their behavior. Nevertheless, an expert at the Tax Policy Center told me that Ms. Ocasio-Cortez’s proposal could raise around $300 billion a year.
But while raising those tax rates closer to those on ordinary income would make the system fairer, other changes would be required to prevent owners of appreciated assets from avoiding their tax obligations. For example, the United States should eliminate the provision that forgives unpaid capital gains taxes on assets held at death.
.. And there are many loopholes that could be closed in the name of greater equity. In 2016, the Obama administration provided a helpful list of candidates: They range from jettisoning the special deductions and credits that producers of fossil fuels enjoy to eliminating the notorious carried interest provision, which allows private equity managers (including me) to pay the lower capital gains rate on what is effectively ordinary income. Of course, if capital gains were taxed as ordinary income, that problem goes away.
Another fruitful area for loophole-closing is the provisions that allow many real estate guys (including President Trump) to pay little, if any tax. For example, while the 2017 tax bill eliminated the rule allowing owners of most appreciated assets to avoid tax by exchanging them for other comparable assets, that loophole was left in place for owners of real estate. So a landlord who sells one building can avoid paying capital gains taxes on the profits when he uses those profits to buy another investment property.