“It’s clearer than ever that business investment has rescued the U.S. economy by shifting into a higher gear. Tax reform and deregulation, take a bow.”
Thank you, tax reform
The Wall Street Journal
February 28, 2019
The American economy is a tremendous engine of prosperity when politicians get out of the way, and for proof look no further than Thursday’s report on fourth-quarter growth. It’s clearer than ever that business investment has rescued the U.S. economy by shifting into a higher gear. Tax reform and deregulation, take a bow.
Growth in the fourth quarter came in higher than expected at 2.6% … and the internals were better than the top line. Consumer spending declined a bit but was still strong. Growth from government spending was negligible—so much for claims of a deficit-led boom in “demand.”
The best news was business investment, which contributed 0.69-percentage points to GDP growth.
Housing and consumer spending helped the economy dodge recession in 2016, but the expansion was tired and needed a lift from capital investment. That arrived in 2017, helping to offset a housing drop-off, and accelerating into 2018 when housing growth was negative.
So what changed in 2017? Well, there was that change of Administration that brought a major policy shift—specifically, an end to willy-nilly regulation and harassment of business. Deregulation reduced the political uncertainty that had caused businesses to delay or reduce investment.
Tax reform arrived in 2018, removing the roadblock of the highest corporate tax rate in the world and inviting companies to repatriate profits held abroad. Investment picked up almost exactly as chief White House economist Kevin Hassett predicted it would. He predicted growth for the year would rise by 3.1% in 2018 on a fourth-quarter to fourth-quarter basis, and growth came in exactly at 3.1%.