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Economist Douglas Holtz-Eakin On Monetary Impact Of Tax Cuts, Deregulation, And Why The Strong Economy Is The Biggest Story of 2018

Dr. Douglas Holtz-Eakin, former chief economist of the President's Council of Economic Advisors under President George W. Bush, says that the underlying strength of the economy has gotten lost in the divisiveness of the political discourse under President Donald Trump.

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Let The Good Times Roll

Dr. Douglas Holtz-Eakin, former chief economist of the President's Council of Economic Advisors under President George W. Bush, says the economy has turned a corner with help from President Donald Trump's tax cuts and deregulation efforts.

"Everyone was frustrated with muddling along at 2 percent economic growth," said Holtz-Eakin, president of the American Action Forum, a Washington policy institute that focuses on economic issues. "We are now [seeing] much faster [GDP growth]. Everyone was frustrated with the absence of any sort of wage growth. That is starting to pick up. Everyone was frustrated with the lack of reinvestment in modern technologies and low productivity growth, and we have seen that swing north as well. Those are all fantastic signs."

Holtz-Eakin said the tax cuts have directly benefited technology solution providers. "Number one, directly, they are going to get lower taxes and better investment incentives for themselves," said Holtz-Eakin. "That also means there is better investment incentives for their customers. That increases their market."

Bottom line: The strong economy is sparking more investment in technology products and services, said Holtz-Eakin. "We have seen a rise in the spending on tech goods," he said. "I expect more of that in 2018 and into 2019."

Can you talk about the state of the economy right now?

Right now the economy is very strong. If you look at year-over-year GDP growth—quarter by quarter—we have seen it reach a recent low in late 2016 and accelerate every quarter. It reached 2.8 percent year over year in the second quarter of 2018. All the early reads on the third quarter are quite strong.

If you combine that with very low unemployment and contained inflation, it is hard not to be pleased about the state of the economy.

What is driving those strong economic measures?

I think there is sort of the basic strength of the U.S. economy plus recent policy changes. The Trump administration's efforts at deregulation have been quite striking and, I think, underappreciated. They have added essentially no regulatory burden in the first year and a half in office, which is extraordinary.

The Tax Cuts and Jobs Act plus the omnibus spending bill earlier in the year—the combined impacts on 2018 and 2019—is real positive. It is hard for me to see any substantial headwinds until you get out to 2020.

Can you quantify how important deregulation has been in terms of business and economic growth?

We can quantify the efforts of the [Trump] administration. In the eight years of the Obama administration, they imposed a costly regulation at an average rate of 1.1 per day. The total self-reported cost to comply with those regulations was $890 billion. So well over $100 billion a year.

The Trump administration has added zero [regulations]. So we have gone from essentially a $100 billion a year stealth tax on the business community to zero. That has to have a big impact. We see in the survey of small-business confidence—the NFIB [National Federal of Independent Business] Small Business Optimism Index]—is at a 35-year high.

One of the things that always shows up in those surveys is regulations. That is really quite visible on the ground.

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