Remember the economy of seven months ago? Until March it was growing at an impressive pace, but the Covid crisis makes it seem distant. With the election approaching, America should refresh its memory of the policies—namely, tax cuts and deregulation—that helped drive growth before the pandemic.
When President Trump took office in 2017, the recovery from the 2008-09 recession was in its seventh year. After years of slow but sustained growth, many analysts expected another downturn. The Congressional Budget Office predicted that from 2017 through 2020 real gross domestic product would grow by only 1.9% a year, and the labor force would expand by only 0.7% a year. Progressive economists called this outlook “secular stagnation,” saying the sluggish growth was largely immune to policy changes.
Free-market economists, including many who eventually staffed the Trump administration, rejected that pessimistic view about the economy’s potential, arguing instead that reducing tax and regulatory burdens would increase productivity and make capital and labor markets more efficient.
By the end of 2017 the White House and a Republican Congress lowered the corporate tax rate from 35% to 21%, allowed businesses to expense capital costs upfront, and reduced tax rates on small businesses and individuals. They also repealed the regulatory burdens on several industries. The Congressional Review Act was fast-tracked to reduce regulation legislatively. Key appointments led to more rigorous use of cost-benefit analysis in the Securities and Exchange Commission, Federal Deposit Insurance Corp., National Labor Relations Board and Environmental Protection Agency. Burdensome and unproductive stress tests on community banks were eased.
These policies were based on the simple idea that economic improvement comes from creating greater opportunities for individual self-improvement. Policies that interfere with free markets destroy opportunities.
The tax and regulatory policies, designed primarily to enhance long-term economic growth, had an immediate beneficial impact