Soft U.S. Economy, Dim Future

The weak U.S. recovery, which higher taxes and more regulations do not help, does not bode well for the nation and its economy going forward.

Our free market economy, whose freedoms our Bill of Rights guarantees, combined to make America the envy of the world. Our economic strength has also translated into an ability to spread freedom around the globe. Based on the strength of our principles, our economy, our people and our leadership, America won the Cold War without firing a shot.

But what's happening today?

Growth is taking place at a glacial place, debt is out of control, incomes are down and unemployment is chronically high.

"Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country," former U.S. Senator Phil Gramm wrote recently in The Wall Street Journal .

"Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income. At the present rate of growth in per capita GDP, it will take another 31 years for this recovery to match the per capita income growth already achieved at this point in previous postwar recoveries."

Based on America's past performance, the Federal Reserve projected that real gross domestic product growth for the period 2011-2014 would average 3.8% to 5%. But underperformance has been chronic throughout the Barack Obama presidency. The rate of growth in gross domestic product, as we've previously noted , has been in the range of 2% for the past six years.

For 2014, the Fed projected a growth rate of 4% . Instead, the economy grew at a rate of only 2.4% last year.

You can buy every bond on the planet, but if you're increasing taxes and burying businesses in new regulation, you're not going to stimulate economic growth. Who would think otherwise?

Gramm wrote that, "The literature on economic development shows that U.S. states and nations tend to prosper when tax rates are low, regulatory burden is restrained by the rule of law, government debt is limited, labor markets are flexible and capital markets are dominated by private decision making. While many other factors are important, economists generally agree on these fundamental conditions."

That's just common sense, but apparently common sense can't penetrate Washington's bureaucracy. Since 2009, the top tax bracket on ordinary income rose to 39.6% from 35%, top tax rates on capital gains and dividends increased to 20% from 15%, and the estate-tax rate went up to 40% from 35%. America still has the world's highest corporate tax rate. Taxation of foreign earnings has created an incentive for companies to not only keep their investments abroad, but move their corporate headquarters to other countries.

Meanwhile, federal debt exceeds $18 trillion. When interest rates rise - as they must, someday - the cost of servicing the debt will exceed $1 trillion by 2022. That's a trillion dollars in taxes we will all be paying without a cent of it going to provide any sort of public service.

More than 100 million Americans of working age are not participating in the labor force , the number of Americans receiving food stamps has risen by 75% since 2007 and the number of people drawing disability insurance is up more than 20%.

The federal government now manages the health-care industry, and regulates the Internet and the banking system like utilities. In addition, the U.S. government has relinquished ownership of the organization overseeing Web policy, notably domain names, the Internet Corporation for Assigned Names and Numbers (ICANN). An international body now will control this.

In a world where Syria continues to use chemical weapons, in spite of an agreement that Russia brokered, and Iran may secure a soft agreement to thwart its nuclear weapon development, why not also give the world's despots control over the Internet?

The U.S. has removed Cuba, one of the world's most repressive countries, from its list of state sponsors of terror - and a CNN poll says most Americans agree with the decision.

We now have the Consumer Financial Protection Bureau, which, like our president, doesn't answer to Congress. And new regulations from the Environmental Protection Agency that will cost billions of dollars to implement, while having virtually no impact on the environment .

So, in America today:

  • Economic policy has been handed off to the Federal Reserve Board.
  • Higher taxes and new regulations are hampering business growth.
  • There have been no new pro-growth policies in the past six years. The largest government spending legislation in history (aka, Keynesian "stimulus" spending) doesn't count, as most of the money went to funding government entitlements and unemployment benefits.

This year, the NASDAQ index and S&P 500 have hit record highs . Go figure.

Follow AdviceIQ on Twitter at @adviceiq .

Brenda P. Wenning is president of Wenning Investments LLC in Newton, Mass.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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