Let's make America grow again
By REP. PAT TIBERI • 2/13/17 12:04 AM
In January, I became the new chairman of the Joint Economic Committee, charged with providing Congress with economic analysis and advice. My advice is not to buy into the story that America's days of strong economic growth are a thing of the past. I refuse to accept the narrative that we are permanently stuck in a "new normal" of slow growth in which most Americans feel they aren't getting ahead. The potential to reclaim our prosperity exists, but for too long it has been constrained by artificial limitations.
In the coming months, I will work to show how we can unshackle America's true growth potential.
In the half-century before President Barack Obama took office, the economy grew an average of 3.4 percent per year. Even the Obama administration's initial projections foresaw several years of growth above three percent and some above four percent. However, those rates never remotely materialized. A predicted rate of nearly 4.5 percent for 2013 dissolved into the reality of 1.7 percent that year. All the while, the Obama administration invoked the word "investment" to justify deficit spending and claimed its new banking, labor, education, healthcare and environmental regulations would actually be good for the economy.
The promises fell flat. There was no growth surge and no return to even the average 50-year growth rate. Last year, growth was only 1.6 percent; a full percentage point below the Obama administration's final budget forecast. This is now supposedly in the range of the "new normal." How did this happen?
The policies of the Obama administration diminished the economy's output potential. Each year since 2007, the Congressional Budget Office lowered its projection of potential GDP, as depicted in the nearby chart. Annual GDP is now more than $2 trillion lower than it might have been without the constraints caused by the Obama administration's policies.
There are projects of value to be completed — airports, bridges, oil and gas pipelines, etc. — and there are distressed communities still waiting for new investment that could bring life back to their neighborhoods. With workforce participation at a decades-long low, many workers who have given up looking for a job are potentially available for hire. Business investment has been very weak and last year even declined for the first time in this recovery. So resources are available to increase production and economic output, but they are currently sitting on the sidelines.
Our tax code discourages workers from earning more and employers from investing and creating jobs in America. Under the Obama administration, America's corporate tax rate became one of the highest in the developed world. Other countries lowered their rates to attract investment and jobs, while we stood still. Worse, small businesses took a hit when Obama raised the top individual tax rate from 35 percent to 44.6 percent, including Obamacare taxes.
Growth can be revived if we remove the burden of an overly complicated, uncompetitive tax code and actually reward work, saving, and investment and untangle the regulatory mess strangling the economy. Last year, the Obama administration shattered all its previous records by issuing more than 95,000 pages of regulations. Regulations often do not generate benefits of a kind that result in higher GDP, and they should not smother the economy but should be thoughtfully and pragmatically implemented.
There is a difference between sound rules to protect health and safety and regulatory overreach. For example, we can ensure safe drinking water without giving the Environmental Protection Agency the power to regulate every pasture pond and prairie pothole.
Financial regulation is also a stark lesson in unintended consequences. One of the authors of the Dodd-Frank law now admits that the asset threshold for incremental bank supervision should have been 2.5 times higher — $125 billion instead of $50 billion. Had the law not classified banks with assets between $50 billion and $125 billion as large banks and burdened them disproportionately with regulatory requirements, they would have issued more loans. Unfortunately, we will never know the nature of all the missed opportunities for business formation, business expansion and job creation over the years.
At 4.8 percent, the unemployment rate is low. Normally, that implies the economy is near its output potential, and that is the underlying assumption some economists make when evaluating Trump administration proposals, such as for infrastructure improvements. But they are not making the critical distinction between constrained potential and full potential. The economy is growing as fast as Obama administration policies allow it to grow. Recognizing the difference between constrained and full potential, and looking beyond the low unemployment rate changes the perspective on what is possible. Imagine the top line of the graph as the operative output constraint; then there is plenty of room for the private market economy to grow faster.
It is time to shine a light on artificial constraints that hold back production and job creation as well as find ways to increase long-term productivity that can help achieve our full economic potential. We owe it to our citizens to unleash the economy and see how fast it can grow.
Pat Tiberi is the Chairman of the Joint Economic Committee. He represents the 12th Congressional District of Ohio.