The country is beginning to focus its attention on the 2016 presidential election as politicians start formalizing their campaign intentions. Like many previous elections, 2016 will give voters the chance to once again choose between the failed policies of redistribution and the proven policies of growth. Hilary Clinton’s formal announcement is no surprise, and it is not likely that she surprises with a pro-growth economic policy platform either. Much more exciting policy work is being done on the Republican side of the campaign trail where a long list of presidential contenders has begun formulating and articulating strategies for economic growth. The GOP candidate who wins the nomination will be the one who most clearly endorses the economic principles outlined in a recent Washington Post article about Art Laffer.
Laffer calls for a simple tax plan that scraps the entire federal code and replaces it with two flat taxes, an 11.8% tax on income and an 11.8% national sales tax. Senator Rand Paul’s tax proposal echoes Laffer’s flax tax idea with a 17% flat tax on income and business, but what is equally important in plans like this is what is not included. Paul’s plan eliminates taxes on dividends, capital gains, interest, estates and the AMT. As Laffer taught us all and reminds us now, all taxes diminish work and whenever you tax something you get less of it.
Unlike presidential elections of the recent past (recall Mitt Romney’s campaign pivot to run on the merits of a weak US dollar that cost him the election) Republican candidates are outlining real, pro-growth solutions that will ignite the US economy. Not all GOP hopefuls have the same understanding of pro-growth policies. Candidates like Marco Rubio and Jeb Bush are falling into the common trap of targeting tax cuts on the middle class to gain popularity. While these ideas may be politically appealing on paper, they are economically foolish. They are, at bottom, another form of income redistribution and ignore the simple fact that whenever you redistribute income total income falls. John Tamny does an excellent job of outing Marco Rubio’s recent tax plan for what it is.
If these kind of flawed tax ideas make it through the GOP primaries then Republicans will lose in 2016 and can once again blame the loss on a policy agenda that did not embrace a true pro-growth option the electorate has been demanding. We are optimistic that harmful policy ideas like targeted middle class tax cuts will never make it out of the primaries, and the GOP nominee will have been chosen because he embraces Laffer style, pro-growth policy solutions. The result will be the creation of more capital, more jobs, more companies and higher middle class incomes. It will, however, require more income inequality. So far, the GOP has avoided the “income inequality” trap that has become the darling of the left.
Our optimism about the future is grounded in the evolving “death of liberalism.” The US has been moving, albeit slowly, towards prosperity/growth and away from stagnation/redistribution since 2010. 2016 could prove to be the final blow to liberalism unleashing an economic prosperity not seen in over thirty years. The good news for investors is that markets are not fully priced for such an economic growth future. As we recently wrote, the US bond market is currently pricing in a real growth rate near 0%. While the US stock market is making new nominal highs, in real terms US stock indexes are roughly 30% from highs seen in 2007. Both the US bond and stock markets are telling the same story and are priced for a low to no growth economic future. A Laffer style, pro- growth policy plan will change all of that. It will unleash a US equity bull market not seen since the 18X stock market advance during the 80s and 90s, and it will once and for all pop the US bond market bubble as interest rates rise to reflect higher growth rates.
We cannot remind readers enough that this reality is within reach. We are pleased that our good friend and excellent economic thinker, John Tamny, is also reminding voters that not only is such a pro-growth policy reality within reach, it is easy to understand. Tamny’s recently released book, Popular Economics, is a must-read for anyone who desires a much deeper understanding of both classical economics and its real world implications. Tamny takes the mystery out of economics and brings a profoundly simple understanding based on common sense instead of complex equations.
The US electorate is in sync with Tamny’s pro-growth ideas. Laffer inspired presidential candidates are finally listening to the voters and offering a menu of real pro-growth policy solutions. Guard against under optimism. The death of liberalism is not only coming, it is already here in the US.
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