On Wednesday the Commerce Department announced that first-quarter growth of gross domestic product was a dismal 0.2%. Following fourth-quarter GDP growth in 2014 of an anemic 2.2%, the already sluggish economy has slowed almost to a halt.
America is facing a harsh reality. The recovery that began in 2009 is the weakest in postwar history. Millions have dropped out the labor force, frustrated by lack of opportunity. Lower-income workers are underemployed, middle-incomes have not advanced as in the past, and government dependency has increased. As budget battles rage in Congress, ignored is what really matters: rapid, sustained economic growth.
The Congressional Budget Office has estimated that the U.S. economy will grow by a meager 2.3% over the next decade, and its estimate has declined in the past six months. At this growth rate, Americans face a future of stagnation, inequality and despair.
Here’s why: From 1790 to 2014, U.S. GDP in real dollars grew at an average annual rate of 3.73%. Had America grown at the CBO’s “economic speed limit” of 2.3% for its entire history, GDP would be $780 billion today instead of more than $17 trillion. And GDP per capita would be $2,433, lower than Papua New Guinea’s.
Looked at differently, had GDP grown from 2001 to 2014 at the 3.87% annual rate of 1993-2000, the federal government would have had a $500 billion surplus in 2014 instead of a $500 billion deficit. And that’s with the same excessive government spending.
The last time the federal budget balanced was 2001 when there was a $128 billion surplus. This was not achieved with spending cuts and tax increases; instead it came after four years of rapid growth—4.45% on average from 1997 to 2000. Helping fuel the economy was a capital-gains tax cut that took effect on Jan. 1, 1997.
The low growth rate during the Obama administration, averaging 1.36%, is not an accident. If the cost of regulations are recognized as taxation by other means, President Obama’s first six years of taxes and regulations (and threats of more of both) have undermined confidence among entrepreneurs, small business owners, and the investors that would back them with capital. For the first time in memory, the number of business entities in America is actually falling, according to the Census Bureau.
An example of what not to do is the EPA’s proposed ozone rule, which the National Association of Manufacturers predicts will reduce GDP by $140 billion a year, destroy 1.4 million jobs per year and cost each household $830 per year. All for health-benefits claims that public-health experts find questionable.
It’s important to be realistic about the future, but 2.3% growth is fatalistic, not realistic. President Obama and the Congress should be agreeing on what it takes to achieve 3.5% growth. Looking at Social Security Trustees’ reports, 3.5% is the rate of growth required to ensure the solvency of Social Security and Medicare, with no tax increases and no benefit cuts.
There are tangible steps we can take toward a pro-growth economy. One step is to reform the uncompetitive corporate tax code, as recommended by President Obama’s Bipartisan Debt Commission, among others, including the repatriation of overseas profits without any additional taxation. Increase oil and natural gas exports, which the National Association of Manufacturers estimates would raise 2020 GDP by as much as 1%, while reducing unemployment by 0.5% due to an increase in manufacturing jobs. Rein in the EPA’s animus for fossil fuels. Replace ObamaCare with a plan that lowers, rather than raises, the cost of employment, and which does not incentivize businesses to lay off low-wage workers or cut their hours.
Congress should devise a plan for 3.5% economic growth. This isn’t wishful thinking. High growth is historically normal for the United States. It is the present imperative, it is the only way forward.
Bill Cassidy is the junior senator from Louisiana. Louis Woodhill is a tech entrepreneur, investor and writer at Forbes Magazine. This piece originally appeared at the Wall Street Journal.