Congresswoman Kristi Noem plays double fantasy on KSOO, claiming her Libertarian-dream tax reform can produce impossible economic growth:
“The small business rate would be at 25 percent. We consolidate the seven individual tax rates down to three. (When) we get rid of a lot of these loopholes and deductions essentially the majority of Americans could pay their taxes with a post card if we were to put this in place.”
By enacting a tax reform package as described, Noem believes the American economy would see a rate of growth around 9.1 percent [Dan Peters, “Kristi Noem Claims That Lower Taxes Is the Answer,” KSOO, 2016.10.25].
We know that “simplifying” tax brackets just makes taxes more regressive and does favors for Kristi’s rich friends. But promising 9.1% GDP growth?! Holy cow!
Let’s get some economic perspective on that absurd GDP claim.
Since pulling us out of the recession, President Obama has overseen GDP growth bouncing between 1.5% and 2.5%. After the first Bush recession, the first President Clinton saw GDP bounce between 2.7% and 4.7%. President Reagan (and Bruce Springsteen record sales) got GDP to 7.4% in 1984.
Economist Thomas Piketty figures that declining rates of population growth and productivity will restrain global economic growth to 1.5% to 3% a year this century.
Kristi’s guy Donald Trump is promising up to 4% growth. That’s not going to happen:
For Trump’s plans to succeed, they would have to overcome forces in the economy, such as rising automation, an aging population and low-wage competition overseas, that have led even conservative economists to call 4 per cent growth an improbable goal [Jonathan Lemire and Nicholas Riccardi, “Trump’s Economic Plan Is an Impossible Formula: Economists,” AP via MetroNews, 2016.09.16].
To stabilize the debt with economic growth, Clinton would need real GDP growth to average 2.7 percent annually (or 2.8 percent with sequester repeal). Trump would need to increase growth to an average of 3.5 percent annually over ten years. The last time the U.S. sustained 3.5 percent growth over a ten-year period was during the tech boom of the 1990s. But given our aging population, that rate of growth would be much harder today; it would likely require a level of productivity growth that has not been achieved in any decade in modern history [“What Would Clinton and Trump Need to Do to Address the Debt Along with Their Policy Agendas?” Committee for a Responsible Federal Budget, 2016.10.18].
China and India are posting around 7% GDP growth because they have growing middle classes, lots of people buying lots more stuff. Our middle class isn’t growing, and it’s been buying about all the stuff it can handle (see also Apple profits declining because we already have iPhones). The only way we approach super-seven Chinese or Indian GDP growth, not to mention a nutty-Noem-niner is if we open our borders to tens of millions of low-income workers or burn down everything we own except for our credit cards…. and under Trump-Noem-onomics, the latter is more likely than the former.
As a South Dakota Democrat, I am dedicated to wild optimism. But not tax reform or any other doable federal policy will bring 9.1% GDP growth in 21st-century America.