By Kevin McNabola
Orange Board of Finance
Kevin McNabola
The US economy continues to exceed expectations to the surprise of many economists and leading financial firms on Wall Street. It’s surprising because the US has seen over $5.6 billion of federal funding thrown into the economy for green energy initiatives and American Rescue Plan Act funding driving inflation, which in June 2022 reached its highest level of 9.1 percent.
One of the key measures of the US economy is gross domestic product, which for the first quarter of 2024 finished at 2.9 percent year-over-year despite economic headwinds and the highest level of monetary tightening in the last 40 years. The economy continues to defy expectations despite significant geopolitical factors, with the wars in Ukraine and Gaza and with three out of four of the largest commercial bank failures within the last year.
From a global view, the US economy also continues to outperform most NATO and European Union countries on GDP, with France at 1.1 percent, Italy at 0.7 percent, Switzerland at 0.6 percent and Germany at –0.2 percent.
So if the economy is outperforming, then why are average Americans not feeling it in their wallets, whether it be at the gas pump, grocery store or when trying to buy a new home?
The reality is that real estate, groceries and fossil fuels still continue to have an inflated price structure due to the fact that there is high demand and low supply for all three. In addition, we also still have the harsh reality of our national debt that continues to be a drag on the economy and which Congress has failed to take action on.
Our national debt now stands at $34.8 trillion and will in the near future ultimately impact banks and both domestic and global investors. It’s hard to believe, but the national debt has increased by $14 trillion dollars in just the last three years. The US Treasury has taken extraordinary measures to keep paying the government’s bills, but the well could run dry sooner than later. Debt growth continues to outpace economic growth (as measured by GDP), and has already reached 100 percent of GDP. It will reach 118 percent by the end of this decade.
Today the federal government continues to implement tax increases at a time when it should be adopting a sound supply side economic policy. The US faced similar issues back in the 1950s, shortly after World War II, when high taxes were prevalent and America endured several recessions every two to three years. We need to learn from history and implement an across-the-board tax cut for Americans that will drive a pro-growth economy for businesses and deliver on free market entrepreneurship.
We have seen throughout our history that there are valuable lessons we can learn when it comes to economics. President John F. Kennedy implemented sweeping tax rate cuts across the board in 1962, leading to GDP growth of 6.1 percent in 1963 and an average of 4.9 percent for the remainder of the 1960s. President Ronald Reagan implemented similar supply side economic policies in 1982, which lead to a free market economy, deregulation, lower taxes and a strong dollar.
At a time when all Americans are feeling the effects of increased prices in all sectors of the economy, we need sound solid economic policy that will ease the tax burden and inflationary impact. Hopefully the economic advisors and economists who sit on the National Economic Council will consider a supply side approach to the economy in the future.
Kevin McNabola is the chief financial officer for the city of Meriden and a member of the Orange Board of Finance.