The main points in this article:
- Companies are burdened with US$2 trillion in costs annually because of regulations
- The law was designed to expand freedom, not to limit freedom with regulations
- Trump seeks a long period of financial equilibrium after reviving the U.S. through job creation
In part 1 of this series, we discussed the need for major tax reductions to create jobs and revitalize the U.S. manufacturing industry. But major tax reduction is not free of problems, the biggest one being a loss of financial resources for the government.
U.S. President Trump wants to increase economic growth by decreasing the tax burden, but the liabilities that come with tax reductions are estimated to come close to US$20 trillion.
Trump is not worried though because he anticipates major economic growth as a result of the major feature of his economic policy: deregulation. Economic forecasts should be made with this in mind.
In part 2 of this series, we will take a look at ‘deregulation’.
Regulations Are Costing Companies $2 Trillion a Year
Trump told business leaders that he wants to cut regulation by 75%, “maybe more”. He has issued an Executive Order that requires two old regulations to be abolished for every new regulation the government introduces. He rightly understands that companies suffer more from over regulation than from taxes.
The Heritage Foundation and the National Association of Manufacturers have announced that government regulations cost American companies around US$2 trillion every year: close to 10% of their GDP. It equals the amount of income tax per annum the Internal Revenue Service collects. According to the Competitive Enterprise Institute regulations are a “hidden tax”, and amounts to a tax levy of US$15 thousand per U.S. household.
The Heritage Foundation specialist on deregulation, Diane Katz, says that “There is virtually no aspect of our lives over which laws and ordinances do not reign.” She has criticized Congress and the bureaucracy for ignoring the regulatory costs, exaggerating its benefits, and putting in place regulations that breach the Constitution.
If government regulations are cut by 75% as Trump intends, we can hope for an increase in revenue from the economic growth it will bring.
Regulations Obstruct Economic Freedom
Deregulation may sound like an opportunity for companies to dupe their consumers, destroy the environment, and degrade security. But the reality is that we cannot practice economic freedom when we are bound by hundreds and thousands of regulations.
F. A. Hayek, who testified about the importance of a free economy, said that for the law to function properly the individual must be able to predict government actions and make plans based on that knowledge and data. Over-regulation is the result of our forgetting that the ‘rule of law’ is a fundamental principle of a free society.
We live in a free society where personal property is accepted, and companies engage in open competition in the market. Each business is responsible for its own survival: if a privately owned preschool had safety problems it will naturally be defeated by rivals in the same market. This is what private ownership is all about.
Chaining private companies with piles of regulations means taking ‘individual responsibility’ away from them. In the USSR where the government controlled all economic activities, no business managers acted responsibly. It is clear that the U.S. and Japan are becoming increasingly socialist.
Since ancient times, the purpose of the law was to expand freedom. In order to create a free and prospering society, the U.S. and Japan must realize the immense costs that regulations bring, and revive the original ‘rule of law’ ideals.
Employment Creation Is the Best Social Security
We have now discussed in depth tax reduction and deregulation in Trump’s economic policy. These two strategies aim to increase GDP and create employment. Trump knows that the best form of social security is where people who want to work have jobs.
Ancient Greek philosopher Aristotle pointed out that when the middle class disappears the entire state will cease to function. Trump has the same idea in mind. In the short-term, this idea will create employment and nourish the people; after the nation is revived, it will bring a long period of financial equilibrium.
Trump’s economic policies arise from his heartfelt desire for the happiness of his people. Speaker Paul Davis Ryan Jr. is known for being an advocate of fiscal restructuring, so Trump may have a hard time trying to legislate his tax reduction policy. But the financial equilibrium Ryan is pushing for will fail to revive the U.S. economy. Republicans need to pay attention to Trump’s love for the American people.