As the U.S. economy begins the second quarter 2021, there are many signs indicating economic optimism and continued growth for the U.S. economy. However, there are also numerous indicators that raise great concern relative to the debate over COVID-19 and current and future economic policy in the U.S. and globally.
Recently the International Monetary Fund (IMF) increased its growth prediction for the U.S. and global economies calling for the U.S. to grow at more than 6% annually in 2021 while leading the global economy out of the depths of the 2020 COVID-19 recession. Just last week, the Atlanta Federal Reserve Bank predicted U.S. GDP would come in at 8.2% for the first quarter of 2021, with consumer price inflation averaging 1.8% for 2021 and business inflation slightly higher at 2.5% for the year.
Positive and negative signs
To date in 2021, all four major U.S. stock markets (S&P 500, Wilshire 5000, DJIA, NASDAQ) all reached new all-time highs. Furthermore, the Federal Reserve Bank of Atlanta sees little chance of interest rate declines between now and June as sales revenue growth continues to increase.
Wage growth in the US grew at roughly 3.4% for the first quarter 2021 on an annualized basis. The U.S. unemployment rate dropped to 6% in March, according to an early April U. S. Bureau of Labor Statistics report. Total farm payroll employment rose by just under one million in March with optimism for a continued decline in the unemployment rate in April on the horizon.
Finally, immigration encounters along the southwest border of the U.S. continued to be a major problem for the U. S. economy in March 2021. Border encounters between U.S. customs agents and individuals trying to enter the U.S. without proper documentation reached 172,000 people, up 71% from February with unaccompanied children making up 18,890 of the March number, up 100% from February 2021, according to the U.S. Customs and Border Protection Agency (CBP). The March 2021 U.S. border encounter figures are especially alarming along the Mexican border when compared to the previous three years: March 2018 – 50,347, March 2019 – 103,731 and March 2020 – 34,460.
Current issues
Among the most major issues for the U.S. in the next couple of years are the proposed massive federal government spending programs that we either don’t need or are not thoroughly vetted and/or paid for at this time. As an example, the U.S. has one of the most impressive records in the industrialized world for reducing its global carbon footprint over the last 30 years. Mandating solar, wind turbines and the percent of vehicles sold that are electric, has not worked in Europe or Asia and most likely will not succeed here (more on this will be in our July issue).
The U.S. economy showed great strength in 2020, even though it was in a recession. It was the best performing economy in the industrialized world in 2020, and since World War II, one of the top performing U.S. economies from 2017 through 2019. We worry it will be dramatically restructured if President Biden and the progressive members of the Democratic party get their way. Currently, after the Trump tax cuts of 2017, the U.S. corporate and individual tax rate has declined to the middle of the pack for industrialized countries, yet still well above countries like Hungary and Ireland when it comes to corporate income taxes. If President Biden gets his way, the current average U. S. corporate tax rate of 25.84% will likely increase to at least 32.37% with some analysts arguing to justify programs President Biden feels essential, the average U.S. corporate income tax rate would probably need to be about 38.92%. Out of the current 32 advanced industrialized countries that make up the Organization for Economic Cooperation and Development (OECD), the United States has the 14th highest average corporate income tax rate.
Most tax experts believe that when the dust clears and a new Biden tax program becomes law, the United States will once again have the highest taxed business environment in the industrialized world. Corporations in America will be taxed at a higher rate than corporations in China or India, let alone the U.K., France and Germany. We fear much of the recent progress the U.S. economy has made relative to global competitiveness and across the board wage growth will be for not and short-lived.
In the upcoming months and years, we believe the United States may very well be faced with the following dilemma: Will America remain a meritocracy driven by exceptional individual achievement, limited government and a constitutional republic or become a kakistocracy where achievement and exceptionalism are replaced by a political economic system seeking a less-rigorous, more equalized system of distribution of the economy’s wealth and performance.
According to numerous sources, including Bloomberg and Forbes, there were 614 billionaires in the United States at the end of 2020, an all-time record high. The 400 richest Americans on the Forbes 400 List had a net combined wealth of $3.2 trillion dollars, up from $2.7 trillion dollars in 2017. It is important to note that these companies employ millions of individuals and with their employees pay billions of dollars in net tax revenue to the federal government. While trillions of dollars are invested in many of their corporation’s stocks, allowing government and private pension funds to flourish, insurance companies to underwrite life and healthcare policies and individual investors to pay for weddings, college educations, vacations, homes, automobiles, etc. Not to mention the extraordinary improvements to our standard of living that their inventions and/or innovations have provided not just Americans, but the world … personal computers and smart phones to virtual shopping malls and rockets.
What is also important to note is that 58% of the 614 billionaires listed last year were self-made billionaires; they did not inherit any of the money or the business(es) they now lead. Many came from impoverished childhoods to reach the lofty heights of commerce and industry. Fully 29.6% earned a combination of their money through inheritance or another family business and then shepherded a new or existing business to afford them billionaire status. Finally, only 12.4% of current American billionaires realized their status by simply inheriting their wealth.
The above shows that America today is still a “pull yourself up by your boot straps” meritocracy. America is still a country where people with a great idea and a dream coupled with a tremendous work ethic can accomplish exceptional things. The American Dream is still alive yet current policies in Washington, D.C. seem to be challenging the future of our current system; higher proposed federal personal and corporate income taxes, higher taxes on investments, enhanced regulations on fossil fuels and automobiles, a “Green New Deal” which lacks clarity of objective and clarity of outcome, federalizing elections, and proposed packing of the Supreme Court, all are or will change the structure of the American economy funneling resources from market-driven investments and job creation to outcomes that have historically proven not to have the same exceptional rate of return.
Comments or questions should be directed to Timothy G. Nash at tgnash@northwood.edu. The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This month’s publication was co-authored by McNair student scholar Kristin Tokarev.
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