Warren Buffett Underplays Election 2016
Warren Buffett's recent comments that a Trump or Clinton presidency won't be catastrophic for the economy surprised political pundits and market watchers alike. He expressed calmn at a time when panic dominates campaign rhetoric. But while he may be correct in the short-run, Buffett is perhaps underplaying the possibility of debilitating, long-term harm from either presidency.
Both Trump and Clinton have proposed policies that would increase costs for U.S. companies to conduct business. Trump advocates trade restrictions while Clinton advocates higher investment taxes. The good news is that, due to government checks and balances, their most destructive policy proposals will probably die in Congress. So, we are unlikely to see much change in the immediate future.
The real danger with either presidency, however, isn't that their actions will wreck the economy today, it's that they will waste time and political capital on unproductive or trivial projects instead of addressing valuable long-term reforms.
In other words, fighting and gridlock over impossible or unimportant legislative initiatives will distract Capitol Hill from achieving meaningful policy changes necessary to give our economy the boost American citizens and taxpayers want.
We shouldn't be talking about tariffs, "beautiful" border walls, and $15 minimum wages. While popular to some members of the electorate, none of these policies will make the U.S. economy more dynamic and productive.
Instead, Trump or Clinton, as President, should focus on reforms that make the economy more productive, flexible, and resilient. Reducing regulation, overhauling the corporate tax code, reforming entitlements, and balancing the budget will improve the situations of average Americans and their families. The immediate benefits of these reforms may seem small, but those benefits will grow and compound year after year.
For example, consider the potential of regulatory reform. The more regulations a new business needs to comply with, the fewer businesses that will open. The Mercatus Center at George Mason University estimates that rolling back regulation to levels we saw in the late 1990s could lead to 6,000 more businesses and 100,000 more jobs each year. This is not surprising since new companies account for about twenty percent of total U.S. job creation.
The next president can also encourage job growth by reducing corporate income taxes. The U.S. has the second highest corporate tax rate in the OECD and ranks 32 out of 34 in tax competitiveness. U.S. companies have received unfair criticism over the past year for merging with companies overseas in order to avoid these high taxes. Rather than seek ways to punish them, we should fix what's driving them away: a harsh tax penalty.
Another problem is that the impossible promises of Social Security threaten to slow our economy as taxpayers have to bear the enormous costs of paying for them. The Social Security trust fund will be exhausted by 2035 and faces an additional $10.79 trillion in shortfall over the next 75 years. And, the hospital trust fund of Medicare will be insolvent by 2030. If we do nothing, taxes on hardworking people will skyrocket or benefits promised to our Senior citizens will be slashed.
Reform will be easier and less costly today than in the future. Reform proposals for solvency are abundant, but political will is lacking. Trump or Clinton could show real leadership by confronting these significant, albeit intractable, threats to our economic health if they can resist getting bogged down in futile, partisan squabbles.
The cost of getting nothing positive done on these fronts for the next eight years is high. The debt is poised to explode, new business formation rates have plunged, we have 6 million people involuntarily stuck in part-time jobs and an entire generation of young workers are being scarred by diminished expectations and lack of opportunity.
Presidents set priorities and agendas. They have the opportunity to highlight problems and propose solutions. Focusing on the wrong problems keeps us from fixing the real issues. Let's hope the presidential candidates take the long view-for our sakes and the sakes of our children and grandchildren.