Two big clouds hang over the U.S. economic future. One is wealth and income inequality; the other is raising the economy’s potential for growth through accelerating productivity. With regard to both, Democrats are quite right to argue that the Trump administration’s policies have not made things better and may be counterproductive.
The pillars of Mr. Trump’s strategy are deregulation of business, a massive tax cut and a tariff war with China and others. Deregulation and tax reforms are not inherently misguided, to the extent the former actually targets unnecessary investment-curbing rules, and the latter brought the U.S. corporate tax rate in line with international competitors (an objective the Obama administration broadly shared). However, the real-world effects of Mr. Trump’s policies have been mixed. In the seven quarters since the tax cut’s enactment in December 2017, U.S. business investment has grown, but more slowly than it did in the seven quarters immediately before the law, according to government data compiled by Jason Furman, an economist at Harvard who advised Mr. Obama. Meanwhile, the sharp reduction in tax rates for upper-income individuals reduced the government’s ability to moderate inequality of market incomes.
What’s really fueling the economy seems to be a combination of consumer and government spending — to the tune of a nearly $1 trillion deficit during the past fiscal year, little of which paid for growth-enhancing infrastructure — plus low interest rates set by the Federal Reserve. As for Mr. Trump’s tariff wars, they burden companies with uncertainty. They weigh especially heavily on goods-producing sectors such as manufacturing that compete internationally.
There is no shortage of Democratic ideas on inequality, from the wealth taxes Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) advocate, to former vice president Joe Biden’s proposal to eliminate the huge current break for inherited capital gains. What we need more of, though, are specific ideas for boosting growth and productivity — the ultimate sources of wage gains. We need to hear more, too, about how, specifically, Democrats would take on China without destabilizing tariffs. Conceivably, Democrats have a good story to tell: Certainly, their pro-immigration posture is more consistent with long-term labor force needs than Mr. Trump’s immigrant-bashing. It’s time they started telling it.