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Tax reform makes McMillan bullish on U.S. economy

Barry McNamara
03/20/2018
Monmouth College professor Ken McMillan makes a point during his presentation to the Monmouth Rotary Club Monday afternoon.
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MONMOUTH, Ill. – Recent changes in the federal tax law should help the U.S. economy continue its near-historic expansion.

That was one of the messages Monmouth College political economy and commerce professor Ken McMillan delivered Monday afternoon to the Monmouth Rotary Club.

In what has become an annual address by McMillan to the group, the professor gave a bullish outlook on the U.S. economy, although his encouraging words came with caution. He said that uncertainty caused by recent events in Russia, North Korea and Iran could affect the current U.S. economic expansion, which began in 2009.

A chief reason for McMillan’s optimism is the impact that will be felt by the recently enacted tax reform legislation.

“Several things are clear,” said McMillan, who dove deeper into taxes last fall during his sabbatical from teaching. “When you have less taxes, people have more disposable income. When they have more disposable income, they do more consumption. When they consume more things ... that means whatever is consumed has to be produced. That increases GDP (gross domestic product), that increases employment, that increases income and that brings more consumption and more GDP and a very, very healthy boost to the economy.”

That spending figures to be across the board.

“Poor people, middle-class people and rich people do not hide the additional money they get under the bed. They consume with it,” said McMillan, who is Monmouth’s Pattee Professor of Political Economy and Commerce. “Many households now feel free to spend on the things they have wanted to spend money on for the last 10 years but were afraid to do so because they didn’t have the slightest idea what was going to happen to the economy. And that is a big plus for the economy.”

Reductions in welfare expenditures

He said the newfound consumer confidence should also have a positive effect on federal welfare programs.

“This booming economy that we have, as long as it’s going to be sustained, will give a lot of individuals confidence to get off of public assistance,” said McMillan. “Now that’s something that you haven’t heard anybody talk about. ... A lot of people who really escaped the economy, stepped out of the workforce for years, are going to have some incentive to get back in because of the potential for them to have a better income than they had on public assistance. That’s going to be a big boom for the economy.”

With more people in the workforce, he said that should also drive down Medicaid expenditures “because people are going to be buying their own insurance or they’re going to be on their employer’s insurance.”

“We’re (also) going to cut unemployment compensation payments,” he said.

Deregulation, tariffs and NAFTA

Recent efforts by the Trump administration to push for deregulation also “bodes well for the economy.”

“The deregulation that has been done has found jobs returning to the United States from Mexico and other places (and) expansion of business from places that previously didn’t really know for sure what they wanted to do,” said McMillan. “In many cases, the problems in our economy have often been because of uncertainty, and we’re eliminating some of that uncertainty.”

McMillan said steel tariffs recently introduced by the Trump administration “are going to cause problems” for U.S. manufacturers such as John Deere, Caterpillar and Boeing because the tariffs could make their products more expensive to produce. But McMillan said, “I don’t think it’s going to start a total trade war” because of the selectivity of the tariffs being imposed. “It’s a concern, but I think it’s being tempered a bit in the way it’s being implemented.”

The same goes for the North American Free Trade Agreement, also known as NAFTA, which President Trump has pledged to renegotiate. Because the U.S. agriculture economy depends heavily on exports to Canada and Mexico, McMillan said he thinks Trump will tread lightly on that issue. In fact, a speech Trump gave earlier this year to the American Farm Bureau Federation gives McMillan reason to believe that the president would not act in a way that would hurt the U.S. agriculture economy.

“He embraced Farm Bureau. Farm Bureau embraced him,” McMillan said. “It was very clear, from everything that he said, that despite his claims and despite his talk, it’s very unlikely that he will do anything that is going to destroy the farm economy of this country by doing something to NAFTA that would hurt our farm exports.”

Infrastructure

McMillan said that another way to encourage the economic expansion would be to invest in infrastructure. The challenge right now is that there is not a consensus on how to pay for the investments in U.S. roads, bridges and other projects.

“Everybody agrees that we need to do something about the infrastructure, and if they don’t I’ll take them between here and Galesburg in the right-hand side of (Route 34) to get there,” McMillan said. “Everybody agrees that we need to do something about it, nobody agrees on where the money is going to come from. I think one of the things that will happen if we keep the economy booming in a sustained fashion, additional revenues are going to be coming in. ... And when it does, those expenditures on infrastructure put people to work.”

McMillan said three items currently generating news would not have an effect on the economy – the rollercoaster ride of the value of the cryptocurrency Bitcoin; gun regulations and school shootings; and the Illinois primary election.

“I see no economic progress there, no matter who wins the nomination tomorrow,” he said.