Top GDP Growth Rates in U.S. History

Natural Born Conservative ^ | October 7, 2015 | Larry Walker II

[NaturalBornConservative]

Trump’s Dynamic Growth Policies

By: Larry Walker, II

In an October 4, 2015 interview on Meet the Press, Donald Trump was asked which government programs he will cut so his tax reduction plan won’t blow a hole in the deficit.

Trump’s first response described how we are going to save a lot in administrative costs by exempting millions of Americans from filing income tax returns. Under his plan, single individuals making under $25,000 and couples making less than $50,000 will not owe any income tax, and will thus not be required to file tax returns. This totally makes sense to me, as I outlined a similar plan in a post entitled, Tax Simplification, Part II - Saving $1,756 Billion, Overnight. Although it’s only part of the answer, it may actually be a bigger deal than some imagine.

Next, Mr. Trump remarked that his dynamic revenue plan focuses on growth. “We’re going to grow the economy. If China grows at 7%, they’re having a terrible year. We’re saying we can’t grow at 3% or 4%.” Overriding the host’s rude interruptions, Mr. Trump continued, “If we do 6% or 7% under my plan, everybody benefits.”

Snarky host, Chuck Todd, blurted out, “We’ve never done [sic]; we’ve never had a year at 6% or 7%.”

Of course, the public should be aware of Mr. Todd’s background. Although he may sound like an economic expert to some, he actually attended George Washington University from 1990 to 1994, majoring in political science with a minor in music, but never graduated. He certainly lacks proficiency in matters involving business, economics, or finance.

Mr. Todd would have no idea that the U.S. economy has in the past grown at rates as high as follows:

• 10.8% (1934)
• 12.9% (1936)
• 17.7% (1941)
• 18.9% (1942)
• 17.0% (1943)

He would likewise have no clue that, back in the good old days, the U.S. economy grew in the 7% to 8% range (see chart below):

• 7.3% (1984)
• 7.1% (1955)
• 8.1% (1951)
• 8.7% (1950)
• 8.0% (1944)
• 8.8% (1940)
• 8.0% (1939)
• 8.9% (1935)

In fact, Ronald Reagan was the last American president to put together a cogent pro-growth economic plan which thrust GDP above the 7.0% mark. Of course Mr. Todd could have looked this up before making a fool out of himself and NBC, but like many of his colleagues, he suffers from the recency effect. He is unable to see beyond the pathetic growth rates of -3.0% to 2.5%, which the U.S. has realized since 2009 (i.e. their new normal).

Mr. Trump continued to discuss how his tax plan will disincentivize corporate inversions (where U.S. companies move overseas to capitalize on lower tax rates and cheap labor). He described how his plan will incentivize U.S. companies to bring an estimated $2.1 trillion (or more) in profits held overseas back to the U.S. for domestic investment. Both policies work to raise GDP, expand the workforce and boost tax revenues.

Trump also discussed his plan to balance our longstanding trade deficits with China, Mexico, Japan and other nations through imposing a scaled tariff. Since over the last decade, trade deficits with the three named countries alone amount to $2.7 trillion, $602.6 billion, and $716.5 billion, respectively, Trump’s balanced trade initiative could add another $4.1 trillion to the national economy.

Mr. Todd continued to interrupt, “We still have a hole in the deficit that this tax plan blows open; unless you tell us what you’re cutting.” Of course this is a classic gotcha question, since most liberals view cutting anything, even waste, fraud and abuse, as a negative.

Given the anemic growth rates he and other liberals are accustomed to, and failing to account for gains realized through disincentivizing corporate inversions, recovering overseas profits, and balancing trade, Chuck Todd concluded that Donald Trump’s tax plan may add as much as $10 trillion to the debt over 10 years.

To this, Mr. Trump simply reiterated, “If we can get it (i.e. the growth rate) up to 5% or 6% it’s a huge difference.”

Mr. Todd again interrupted, “Okay, 6% is something we have not done.”

Trump refuted, “Well, we used to do in the old days.”

It turns out that Mr. Todd is wrong, and that Mr. Trump, who has the kind of thinking America needs to solve its trade, growth, and debt problems, is correct. The chart here shows U.S. GDP growth rates from 1930 through 2014. Growth of 6% or more has been achieved numerous times in the past and is entirely possible in the future. The first step in getting there is to stop listening to know-nothing media pundits. The second step is to elect a president with notable acumen in financial matters.

“Solving a multi-trillion dollar problem just may require the mind of a billionaire.”

References:

Data Worksheet

Bureau of Economic Analysis - Interactive Data

30-Year Trade Deficit with Mexico

30-Year Trade Deficit with China

Tax Simplification, Part II - Saving $1,756 Billion, Overnight

Big U.S. firms hold $2.1 trillion overseas to avoid taxes: Study

An Economic Program for Stimulating Economic Growth

[MNJohnnie]

Good read, thanks for posting

[central_va]

“We still have a hole in the deficit that this tax plan blows open; unless you tell us what you’re cutting.”

Disingenuous. Kennedy and Reagan both cut taxes and FedGov™ revenues grew substantially during those periods.

[2001convSVT]

Yes, an excellent post. Todd needs to go back to school or talk to some real economical historians.

[knarf]

yeah ... me too

[MNJohnnie]

Immedate reponse to Todd from any GOP candidate should be:

“Curious how you in the establishment media always worry about the Deficit when we talk about cutting taxes but never have a word about it when Hillary and the Democrats start talking about massive new spending programs”.

[9YearLurker]

All those high growth rates were coming out of serious downturns. And after our serious downturn in 2008, we should have bounced back with huge rates as well.

Of course, as we know, we instead squelched the economy and it has only staggered to meager growth since.

[Jim from C-Town]

There has been little to no growth. Most of the GDP increase is due to Federal spending spurred by massive borrowing and Fed printing.

[SeekAndFind]

RE: Trump’s first response described how we are going to save a lot in administrative costs by exempting millions of Americans from filing income tax returns.

I actually preferred his original plan when he actually proposed to taxed low income earners (those individuals making $25,000 or less and families making $50,000 or less ) one percent.

Every citizen of this country SHOULD participate and pay for in the running of the government, defense, infrastructure, etc.

Everyone should have skin in the game.

[9YearLurker]

That’s merely discounted growth—as in, would have otherwise been spent/demand created in the private sector, at a higher level.

[NaturalBornConservative]

The truth is that most of these (individuals making $25,000 or less and families making $50,000 or less) get more back in tax credits (earned income credit, child tax credit, education credit, etc...) than they pay. Thus, exempting them from filing requirements actually saves revenue.

[Jim from C-Town]

Possibly maybe even likely, but not definitely.

[Jim from C-Town]

Married couples and single people do not receive child tax credits or tax credits at all. They must have children in order to qualify.

So a married couple earning $50,000 would actually save several thousands in taxes as well as the single person with $25,000 salary. It is a big deal for those in that income bracket.

That being said, MOST of these people would spend the entire savings + on consumer goods helping to further spur economic activity. There is nothing more destructive to economic activity than income taxes. They are a tax on precisely the activity we want to encourage, work and economic activity.

The fact is that the AVERAGE household income in the United States is just $50,000 BEFORE deductions. This simplification so helps the average person it is difficult to overstate.

[NaturalBornConservative]

On the aggregate, these income classes (zero to $50K) are in a negative tax bracket. They get back approximately $52 billion more than they pay in taxes. However, I agree with the rest of your comment.

[Jim from C-Town]

Only for households with children. Single and two person households with $25 or $50K respectively do pay taxes as they get limited personal deductions. Families with children get money back in Earned Income Tax Credits.

[NaturalBornConservative]

Again, under the present tax code, on the aggregate there is some liability in the $40K to $50K range, but this is more than absorbed by the negative liabilities in the lower tiers, as shown above. Those without children are not really paying anything into the system, their tax payments are simply being redistributed. So the nation loses nothing by exempting everyone below $25K or $50K.

[Jim from C-Town]

Yes, but that is for ALL households with this income. Not single person households.

So YES, families with CHILDREN and wages under fifty or 25 thousand have returns and no liability, but single people with adjusted gross income of $25,000 and couples (two adult no children) households with incomes of $50,000 fall into a tax bracket that has them paying a couple thousand net in taxes.

Trump is saying SINGLE ADULTS with income of $25,000 or less pay ZERO income taxes. Right now they are subject to a tax rate of 15% so an adjusted gross of $25,000 would pay $3,700 in Federal income taxes. Where a family of five with an adjusted gross income of that amount would actually receive a tax refund of around $6,500 including Earned Income Tax Credits and Child Tax credits only available to people with children at these adjusted gross wages.

OPut another way since taxes are progressive and the highest rates are only put on income ABOVE the next level a couple making $65,000 of adjusted gross income NOW pays about $12,279. in total Federal Income Taxes PLUS payroll taxes on whatever the gross is.

That is 10% of the first $8,700. in income. 15% on every dollar between $8,701 - $35, 350 or $3, 997 in income tax and 25% of every dollar over $35, 351 or $7,412 in income tax.

With Trumps plan the same couple would get the first $50,000 in income TAX FREE and pay 10% on the $15,000 over the first $50,000 or about $1,500 in net tax liability a savings of $10,779

People who are single and make $25,000 in adjusted gross income DO PAY FEDERAL INCOME TAXES. Same goes for two person households with $50,000 in income.

[NaturalBornConservative]

The chart displays tax returns, or tax units, not households. A tax unit is an individual, or a married couple who file a tax return jointly, along with all dependents of that individual or married couple. A tax unit is therefore different than a family or a household in certain situations. For example, two persons cohabiting would be considered one household but if they were not legally married, they would file separate tax returns and thus be considered two tax units. A family could consist of a married couple and the wife's elderly mother who lives with them. That family would be considered two tax units since, if the elderly mother had a large enough income, she would be required to file a federal income tax return on her own. Thus the number of tax units will tend to be larger than the number of families or households reported elsewhere.

As for your example, a couple with $65,000 of taxable income, after personal exemptions and either the standard deduction or itemized deductions, currently pays taxes of $1,845 (10% of the first $18,450), plus $6,983 (15% of the next $46,550), or a total of $8,828. Under the proposed plan they would pay $1,500 (10% on the $15,000 above the $50,000 base). That's a savings of $7,328. That's computed with the 2015 Married Filing Joint tax rate schedule. I believe you applied the Single tax rate.

I agree with you that most single persons making $25,000, and couples making $50,000, without children, currently pay income taxes. But that's the cutoff point. You have singles making between $0 and $25,000, and couples making between $0 and $50,000.

Taking a macro view, as in the chart I shared (which is a little dated, but suffices), it's clear that all of the net revenue collected by the government currently comes from tax returns reporting more than $50,000, and better than 64% of the revenue collected is paid by those reporting more than $200,000 in income.

If you add the tax liabilities of those above $50,000 you get $820 billion, which is more than the total net revenue of $767 billion. How can that be? What changes is that the tax code is simplified, and we will no longer be redistributing $67 billion in tax expenditures (i.e. no more refundable tax credits).

As far as deductions go, according to the plan, those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions.

In 1913, the first year the income tax was imposed (other than the temporary Civil War tax), less than 1% of the population was subject to taxes. The standard deduction back then for a single person was equivalent to $72,000 today, and for a married couple it was equivalent to $96,000. I think this plan is a valiant attempt at restoring something lost during the early progressive movement, when wealth redistribution became the government's primary business. It's time for this to end.

[Jim from C-Town]

I agree that the plan is a good start. It makes the system easier and easier is better.