Four Crazy Economic Ideas You Might Hear at Tonight’s GOP Primary Debate

By Roosevelt Institute |

The Republican presidential candidates will have their first televised debate of the 2016 cycle tonight. Here’s what they’re likely to say about the economy:

1. Cutting taxes on big corporations and top earners is the best way to grow the economy.

All the candidates on stage tonight at the GOP primary debate will express some flavor of “trickle-down economics”—the failed idea that low taxes for the most well-off is the best policy for economic growth. Through a series of policies implemented over the past 35 years, we have already tried this tax-cutting strategy—in fact, some would say we are still in the midst of a 35-year trickle-down experiment—and as a result economic growth and business investment have slowed while inequality has risen.

To defend their position, Republican candidates will point out that America’s nominal corporate tax rate is among the highest in the world, but this is misleading. American corporations pay an effective tax rate of just 12 percent. Such a low rate could be justified if corporations were using the proceeds to fund productive investment, but the evidence does not support a connection between lower tax rates and higher investment. Today, U.S. corporations are holding more than $2 trillion sitting in offshore tax shelters, and a growing body of research shows that excess profits are used to enrich shareholders rather than improve a company’s long-term prospects for success.

Taxes on top incomes have fallen precipitously, from nearly 70 percent in 1980 to 39 percent today. While top earners have benefited from lower rates and a growing share of deductions and have captured nearly all of the economic gains of the recovery, median wages and family incomes have stagnated.

Thirty-five years of evidence is clear: the main result of cutting taxes at the top and for big corporations is more inequality, not more economic growth.

2. Supply-side policies will make the economy grow at 4 percent and solve America’s economic problems.

Jeb Bush and Chris Christie pledged to boost the economy to 4 percent growth. Historically, the United States has grown at an average annual rate of 2.9 percent, typically only growing above this trend when the economy is coming out of recession.

As we’ve seen, growth is not synonymous with broadly rising economic wellbeing. U.S. economic growth from 1979 to 2007 certainly benefited the top 1 percent of households, who saw incomes increase by 275 percent; however, compensation for the median households increased just 15 percent over this time—largely because families are working more hours, not because wages are broadly rising.

The deck is stacked against candidates pledging 4 percent growth: The Congressional Budget Office forecasts that U.S. growth will slow to 2.1 percent by the end of the decade as the native-born labor force ages and shrinks. Not only is a 4 percent growth goal unprecedented in advanced economies like the U.S., but there is no credible way to reach 4 percent without building a more inclusive economy.

3. The United States is nearing a Greek-style debt crisis and needs more spending cuts.

The United States is not Greece. Greece’s main pitfalls were being part of a fundamentally flawed European monetary union, combined with Europe’s fundamentally flawed policy response to the financial crisis: sharp public spending cuts that plunged Greece’s economy into a tailspin, causing it to contract by 25 percent, and ballooned the debt burden, which is on track to exceed 170 percent of GDP by 2022.

Yes, the United States has debt, but at an eminently manageable level. And unlike Greece, which does not control the euro, the United States issues government bonds in a currency over which it has monetary policy control. More importantly, it matters a lot what we spend borrowed money on: war and tax cuts for corporations and the wealthy, or investments in education, infrastructure, and science that would strengthen our long-run potential for growth.

4. The Affordable Care Act and Dodd-Frank financial reform are crippling the economy and must be repealed.

A well-functioning economy needs healthy people to drive innovation and growth and a well-functioning financial system that efficiently channels savings into investment without causing systemic crises. Before the Affordable Care Act (ACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act, America lacked for both.

The ACA extended health care to 16 million people and lowered health costs for those with public and private insurance. Repealing the ACA would cast millions out from the health care system, raise health care costs across the board, kill the hallmark improvements that ended restrictions on people with pre-existing health conditions, and increase federal budget deficits by $137 billion.

Americans are still suffering the hangover of the financial crisis and housing market collapse that led to $8 trillion in lost household wealth, double-digit unemployment, and a taxpayer-subsidized bailout of the world’s largest financial institutions. Five years after Dodd-Frank, many new rules intended to prevent such a catastrophe from happening again are still yet to be implemented due to rampant opposition, such as the rule for corporations to publish CEO pay ratios.

Photo by Gage Skidmore

The Roosevelt Institute brings together thousands of thinkers and doers—from emerging leaders in every state to Nobel laureate economists. We reimagine the rules that guide our social and economic realities. Follow us on Twitter @rooseveltinst and like us on Facebook.