Good advice.
The current agenda seems straightforward but limited: Extend
the tax cuts, deport some immigrants, tariffs, some industrial policy.
My advice: Think much bigger. Yes, these will be a first
year agenda, but also use that time to lay the ground work for transformational
changes. What will be Trump’s legacy? Focus on changing how things get
done, not just the policy answers which can get overturned. In many cases, just
letting the weeds grow will work better than trying to reform dinosaurs.
We are at an inflection point. The progressive left is
discredited. Voters consider the “elites” running the country for the last few
decades to be completely incompetent. We look around and our public life looks
like a hoarder’s house. A counter-revolutionary wave is sweeping the globe,
from Javier Milei to Giorgia Meloni to Pierre Poilievre. This is potentially
bigger than the Reagan-Thatcher revolution. But just where this wave will lead
is still an open question. You can set that agenda.
Don’t underestimate Trump. Yes, he’s a “disrupter.” He will
say and do things outside the tired constraints of the traditional small swings
between parties. He will talk about buying Greenland!
Here’s an agenda. (Mostly, “read the last 10 years of Grumpy
Economist,” but I distill.) In big philosophical terms, this is the “growth”
“abundance” “efficiency” and “freedom” agenda. That contrasts with some on the
right who long for a more protected life, and are willing to accept the
stagnation that protected economies suffer, as evident in Europe and Latin
America.
But you don’t have to get in a fight. There are so many
opportunities in the Trump agenda, that if you spend your time on the bold
growth-oriented innovations rather than fighting too much about tariffs, you
will get much further.
Taxes
The current income tax system is an abomination. Burn it and
start over.
The tax code has three functions: Raise revenue for the
government, redistribute income, and subsidize this and that. Start by
separating the functions.
Revenue
To raise revenue for the government with minimal economic
cost, the unequivocal answer is to eliminate the personal and corporate income
tax, estate tax, all taxes on rates of return (interest, dividends capital
gains) and replace them with a consumption tax. The same rate for all goods:
don’t transfer income by mucking with prices. No deductions, no exclusions, not
even mortgage interest and charitable deductions. Lower the rate, broaden the
base. I prefer a VAT for various reasons, but the mechanism doesn’t matter so
much. The “fair tax” was already introduced into Congress. Detailed
consumption-tax proposals have been around since the 1970s. This could
happen.
Redistribution
What about progressivity — the idea that better off people
should pay not only a larger amount but a larger percentage? Well, now you’re
redistributing income, which is a different question. We need to stop looking
at taxes in isolation and examine the progressivity of the whole system,
including tax and spending. A flat tax that finances big transfers can be more
progressive than a graduated income tax.
One can continue to mix taxes and redistribution, with a
progressive consumption tax or even a progressive VAT. But why pervert taxes to
do the work of redistribution? If you want to redistribute, send people checks.
On budget, annually appropriated, not perpetual entitlements. See social
programs below. As in much else, focus first on getting the structure
for making the decision, not the final outcome.
Subsidies
Opportunity zones, low income housing tax credits, energy
efficiency tax credits, renewable energy tax credits, electric vehicle tax
credits, and on and on. “tax credits, deductions, exclusions, exemptions,
deferrals, and preferential tax rates. .. operate like mandatory spending
programs (such as Medicare),” and “Are Comparable in Size to Federal
Discretionary Spending.” (GAO)
Much of this is automatically eliminated with the corporate
income tax. If you want to do this, send people checks. On budget, annually
appropriated. Send checks where voters can see them.
Social programs
We have hundreds of means-tested social programs, plus
redistribution through the tax code. This needs to coalesce into one sensible
system. Programs interact, so even if each program is well designed to take
away only, say, 30 cents of benefits for each dollar earned, once you
participate in several it’s easy to lose a dollar of benefits for each dollar
you earn, and more. There are cliffs where one extra dollar loses health
insurance or housing.
Put them in one place, and make sure nobody faces more than
a 50% marginal tax rate. Drastically simplifying would help. Why do we have
over a hundred separate means-tested housing, food, energy, transportation,
health, and income subsidies?
If we got the incentives right, a lot of the cost would
evaporate.
Social security fixes are well known. Index to prices not
wages. Work longer. It will inevitably become a transfer program not a savings
program.
Health
Health care and insurance is a drastically overpriced mess.
Quality can be good, but the expense is horrific. This is NASA, not SpaceX.
Look at your latest bill.
Bring back the market. There is no reason health care and
insurance can’t be provided by a competitive deregulated market. Help poor
people with a voucher. If the government wants to pay for people’s insurance,
that does not mean that the government must run its own insurance company. Or
offer a bare-bones public system, if you wish. But your, my, and typical
working American’s health care does not need to be so government managed in
order to help poor people. We don’t have a government takeover of housing to
provide homeless shelters. (Well, except in California, but that’s another
story.)
Basics: Get rid of the tax deduction for employer provided
group insurance, or at least apply it to personal portable plans. (Once we get
rid of income tax, that will be easier. These things interact.) Bring back the
cash market so that it’s possible to just pay for care. The cash price should
be the low price! Maybe we need a law that providers must offer a cash price
equal to or lower than any negotiated price including Medicare. (It would be,
except mandated cross-subsidies.) Eliminate cross-subsidies and allow
competition. (Much
more, including all your objections.)
We don’t really need to get rid of Obamacare in its
entirety. Just get rid of a few of its prohibitions that do not allow an
innovative competitive system to emerge and outcompete Obamacare, for example
by allowing portable individual guaranteed renewable policies that are now
illegal.
FDA should certify drugs, but not make it illegal to buy
unless certified — or required for insurance to cover it if certified. Medical
school supply constriction, state licensing, more immigrant health workers…
Regulation in general
The DOGE is a great initiative, and I look forward to seeing
what they do when faced with the regulatory morass.
The problem is not so much the number of regulations, it’s
what those regulations do. Were need smart regulation, not just less
regulation.
Fix the structure of regulation. Each regulation
should face a mandatory review, every 5 or 10 years. It needs to go through retrospective
cost benefit and public comment. It needs to regularly prove it works as
intended. We need shot clocks: regulatory review can’t take more than a year,
legal challenges end in a year. Congressional review to block regulations
should be open ended.
Obviously regulating AI, the biggest and most promising
technical innovation of the moment, before we have any idea what it can do,
would be a terrible growth-killing idea. Don’t follow Europe down that path.
Energy
Throw it all out. Mileage standards, efficiency standards,
washing machines that don’t wash. Throw out EV solar and windmill subsidies
that do not reduce a thimbleful of carbon (if you subsidize alternatives, that
just frees up gas for someone else to burn). End the war on fossil fuel, train
subsidies, all of it. How have we had mileage standards since the 1970s and the
Ford F150 is the most popular car in the US? (Answer: Separate standards by
weight class, undoing the whole point.)
That will follow if we apply the above: look at each
regulation and see honestly if it has achieved anything useful.
Bring back nuclear. Fund the Nuclear Regulatory Commission
by how many reactors it approves.
Banks and Finance
The Dodd-Frank Reforms failed. See SVB, an elephant in the
room which the regulators did not see. And now they want to regulate “climate
risks.” Big banks are still too big to fail and count on bailouts. The Fed
refused to let corporate bond prices fall in the last hiccup.
Enough. We know the answer: with equity-financed banking and
narrow deposits, we need never have a private sector financial crisis again.
You don’t have to try to reform the dinosaurs, who scream
about having to put one dollar in for every 10 they borrow. Just let the mice
grow. If you run a financial institution in which short term debt is less than,
say, 25% of the market value of equity and long-term debt, do what you want.
(Like SpaceX. Why do we need an army of regulators looking at safe bond
portfolios, and none looking at rockets to Mars? Because Spacex is funded by
equity.) If you take deposits and process payments, back them with reserves or
very short term treasurys, and do what you want. (More
here, with answers to your objections.) The Fed should stop its war on
narrow banks, and given them medals instead.
Oh, yeah, fix
treasury debt. The treasury, not the Fed, should supply reserves to all.
And eliminate the CFPB.
Immigration
With a falling birthrate and bankrupt social programs we
need immigrants. We need economic immigrants, that will come, work, start
businesses, raise families, pay taxes. Are medical costs too high? Let in more
nurses. (For example.) Jobs? Each immigrant increases demand too, providing
work for Americans.
The immigration system is dysfunctional, with an emphasis on
asylum, family reunification and so on. It’s practically designed to let in
people who will cost a lot, and not assimilate. Legal economic immigration is
very difficult. If you want to come to the US, work, pay taxes, raise a family,
and vote Republican, the wait is literally hundreds of years from many
countries.
President Trump has expressed some good ideas: raise H1B
visas, staple a green card to each STEM degree, welcome Canadians. But think
outside the boxes. Bureaucrats are poorly positioned to decide who is high
productivity and who is not.
Focus on the rules not the numbers. As a tariff is always
better than a quota, a rule is better than a number. The easiest answer is just
to charge for it. Pay $10,000, speak English, pass the citizenship test, show
you have means of support, no social programs or other support for 5 years,
welcome to the US. Immigration needs assimilation. That’s Europe’s big failing.
(An
essay on immigration.)
Little things
Labor law reform. It’s hard to hire people. It’s hard
to fire people. A thicket of laws and regulations stand in the way. (Did you
know there is a federal
rule on how employees share tips?) We are now the Republic of HR. Try
hiring a nanny legally.
Education: Vouchers, Charters.
Repeal the Jones act. Maybe when the US fleet is down
to one ship we can jettison this anachronism.
Insane construction costs and delays. $2 billion per
mile subways. 10 years permitting process. Davis Bacon and contracting
restrictions that drive up construction costs. NEPA review. Make America Build
Things Again. Cost bloat is our #1 national disease.
Housing. We insanely subsidize housing, and regulate
it at the same time. Axe Fannie and Freddy. Axe “affordable” housing schemes.
Eliminate the mortgage interest deduction. (Another benefit of eliminating the
income tax, it goes away on its own.) Eliminate rent controls. The first thing
a consumer financial protection bureau should do is to nudge people out of a
fantastically over-leveraged low-return high idiosyncratic risk investment —
the owner occupied home. Buy stocks to build wealth. Drastically reduce historic
preservation. Our cities are not museums. Let Them Build. Restore property
rights.
End the Ex-Im bank. I just picked one of our many
crony-capitalist subsidies.
Transportation. With a few exceptions, train bad, bus
good. Well, train lovely, nostalgic, but ridiculously expensive, stuck where
the tracks go, low passengers per hour, inflexible. Eliminate the preference
for rail in Federal transportation programs. No federal money for transit
systems that don’t collect fares. Allow private buses. Public transit needs to
be fast and safe. Overturn Biden orders that infrastructure money can’t
go to new roads or lanes.
Law
We have way underinvested in our legal system. And it’s
pretty cheap, on the scale of $100 billion ratholes like student loan
forgiveness, chips and energy subsidies, and so on.
Crime
clearance rates are shockingly low. If almost everyone who committed a
crime got caught, we would have a lot less crime with much less severe (and
expensive) punishment. On the other side, criminal suspects sit for years, and
the vast majority are denied real trials. If immigrants have the right to a
hearing, it shouldn’t take years. There are only 1457
federal judges.
Restore our economic freedoms, including the right to
transact. No more de-banking.
Federalist society: It’s time to rethink Wickard v. Filburn!
If I grow wheat in my own back yard to make bread to feed my own family, how in
the world is that the business of the Federal Government?
Epilogue
Well, we can go on and on. I seem to have drifted from
advice for the Trump Economic team into a Libertarian Fantasyland, so I doubt
that phone is going to ring. But you never know… who would have thought
Argentina would elect a Libertarian?
