The Little-Known Reason We’ve Avoided a Recession (So Far)
“Supply-side tax cuts put a resilient floor under the economy and boosted profits, despite Fed hitting the brakes.” — Larry Kudlow, Fox Business
The economy has surprised many pundits who have predicted an economic tsunami and a stock market collapse in the face of the Fed’s aggressive tight-money policy. My monetarist friends such as Steve Hanke and Tim Congdon are predicting a severe recession in 2024 due to the money supply not growing.
And yet the Dow has hit successive, new highs as we begin a new year.
Price inflation is moderating. Bond yields and mortgage rates are down. Real estate has not collapsed. The Fed is expected to begin cutting rates in 2024.
Corporate profits are strong as we enter 2024. The labor market is robust, and unemployment is low. Cruise ships are sold out. Restaurants are packed. And consumers continue to spend with gusto.
The biggest worry is a weak business environment and a potential commercial real estate collapse. Manufacturing is down. Gross output (GO), which measures spending at all stages of production, including the all-important supply chain, has been in a downturn, although it along with gross domestic product (GDP) moved back up to the 3-5% range in the third quarter.
Then, there is the growing fear of a debt crisis with out-of-control government spending.
Nevertheless, overall, the U.S. economy is doing surprisingly well and has avoided a recession at the beginning of the all-important election year.
The Biden administration and its economists, including Paul Krugman, are singing the praises of the Democratic formula for recovery and taking full credit for the recovery.
And yet they never say a word about one reason the economy has done well: the 2017 Trump tax cuts!
The Benefits of the Trump Tax Cuts and Jobs Act of 2017
In 2017, supply-siders, led by Larry Kudlow, Art Laffer and Steve Moore, worked with President Donald Trump to push through the Tax Cuts and Jobs Act, offering tax cuts in corporate and personal income taxes.
They are still in place, which may be one reason employment and job creation have been so robust during the Biden era. As Larry Kudlow, Director of the Council of Economic Advisors under Trump, states, “supply-side tax cuts put a resilient floor under the economy and boosted profits, despite Fed hitting the brakes.”
We may still be hit with a recession in 2024, but if we are, the Trump tax cuts will cushion the fall.
21% Corporate Tax Cut Made a Big Difference
One of the biggest achievements was the reduction of the corporate tax rate from 35% to 21%, making the United States competitive with the rest of the world.
Fortunately, the 21% corporate tax rate is permanent, and the Democrats do not have the votes to overturn it.
Under Trump, personal income taxes were cut 3% for middle- and lower-income earners, plus a higher standard deduction, all indexed for higher inflation. That’s a big boost to protect workers suffering from the rise in inflation last year.
The only downside is that all the Trump tax cuts were not made permanent. The corporate tax cut is permanent, but expensing capital costs will disappear gradually, and the personal income tax breaks will be eliminated in 2025 unless Congress renews them. That’s why the Republicans are hopeful to regain Washington in November.
Art Laffer said it best in his new book: “Taxes Have Consequences.” He shows example after example in U.S. history where taxation played a key role in the ups and downs of the economy. Highly recommended.
‘Everything You Want to Know About the Ideal Tax System’
Speaking of taxation, I’m mighty proud of chapter 21 in my new 6th Edition of “Economic Logic,” THE guide to sound economics, all in one book. It’s ideal for students and adults alike and is used in introductory courses in colleges around the country.
The Most Dangerous Tax
“Government Revenues and Tax Policy” reveals the only true correct theory of taxation, known as the “benefit” or “accountability” principle, and why the popular but dangerous “ability to pay” principle leads to a graduated income tax, one of the most pernicious doctrines alive today.
I go through all the pros and cons of various taxes on income, sales, estate, wealth, capital gains, dividends and interest, and the unintended consequences of each one. I also wrote about the dangers of the value-added tax (VAT) and import duties.
Plus, I have a whole section on the flat-tax movement in Eastern Europe and other countries.
And several pages explaining the benefits of the famous Laffer curve, named after Art Laffer.
For a quick summary of what’s NEW in the 6th edition of “Economic Logic,” go here. It is the only textbook that introduces economics with the profit-and-loss income statement, and fully integrates gross output (GO) into economics.
Business leaders and students love it.
What Economists Are Saying
“Eureka! Skousen has done the impossible. Students love it! I will never use another textbook again.” — Harry Veryser, University of Detroit-Mercy
“Mark Skousen is the only economist I can understand.” — Dr. Lawrence Hayek
“An excellent balance of theory and the real world that no other text has achieved.” — Charles Baird, California State University, East Bay
“Better than any book out there! Skousen presents real business economics in a clear, provocative and logical fashion.” — Ian Mackechnie, University of Wales
“Perfect for any economics student — designed to maximize learning while minimizing monotony. Simple, direct and comprehensive.” — K. Au, Homeschool instructor
“My college econ classes, filled with perplexing theories like the paradox of thrift, GDP and Keynesian fiscal policy, were completely refuted by this excellent free-market textbook. Students, if your professors don’t use this text, get it for yourself so you can really understand the concepts of sound economics.” — Amazon review
“Economic Logic” is a 738-page guidebook on all aspects of sound free-market economics. It is dedicated to Milton Friedman and Friedrich Hayek. Read the book and see why.
The price on Amazon is $82 plus shipping, but if you order through www.skousenbooks.com, you pay only $35. I autograph each book and mail it at no extra charge anywhere in the 50 states.
Orange County AAII Conference, Saturday, January 20, 2024: If you live in Southern California, please join me for my two-hour presentation on the outlook for stocks, commodities and real estate, 9-11 a.m. at the Center of Founder’s Village, 17967 Bushard Street, Fountain Valley, CA 92708. Parking is free, but there is a $5 charge for attending this event sponsored by the Orange County chapter of the American Association of Individual Investors. For more information, go to AAII Orange County Webpage. To confirm your attendance, email Stephanie at sdavis388@gmail.com.
Good investing, AEIOU,
Mark Skousen
You Blew It!
President Claudine Gay Resigns, But Remains Teaching at Harvard
Harvard President Claudine Gay was pressured to resign this week due to her apparent anti-Semitic comments after the Israeli-Hamas war, and her recently discovered cases of plagiarism. She was in for only six months, the shortest term in Harvard history.
In her resignation letter, she offered no regrets or apology for her actions. In fact, she stated, “it has been distressing to have doubt cast on my commitments to confronting hate and to upholding scholarly rigor… and frightening to be subject to personal attacks and threats fueled by racial animus.”
Racial animus? Scholarly rigor? What about the 50 documented cases of plagiarism in her academic writings?
Her firing has nothing to do with race, but rather her inappropriate remarks about Israel, and her plagiarism.
She was ultimately fired because Harvard had lost over $1 billion in contributions since the controversy began. Money talks in higher institutions.
What’s especially disconcerting is that Professor Gay will remain on the Harvard faculty in the Department of Government. Does not scholarly plagiarism mean anything anymore at America’s premier educational institution?
