Source: CRS calculations based on data from the Bureau of Economic Analysis (BEA).
Note: Economic expansions as identified by the National Bureau of Economic Research
The Obama recovery of the last seven years remains the worst in postwar American history. Average gross domestic product (GDP) growth since the bottom of the recession in 2009 was barely above 2.1% per year. The average since 1949 is well above 4% per year during the previous 10 expansions.
This result is not just bad, it is catastrophic. The average American should not be wondering if his or her income is a bit above or below 2007 levels. Just by historical averages, the average American should be 20% better off than in 2007. And this slow growth is settling in as a permanent new-abnormal.
I believe the root cause of abysmal growth is the huge tax increases imposed by Obama and the Democrats in Congress since 2008. The most harmful were the increase in the capital gains tax from 15 to 20 percent, the increase in top bracket income from 35 to 39.6 percent, and the new tax of 3.8 percent on investment income in the Affordable Care Act (ACA). The massive increase in regulatory burden through the ACA and Dodd-Frank bills are also crushing, but unfortunately are harder to measure.
The 13.4 percentage point tax increases mentioned above (plus higher state and local taxes) directly lower expected returns on all investments by the same amount. Our government grabs the fruits of investment, and then is puzzled that businesses do not invest. This causes billions of dollars of investment projects to come off the table That is precisely what happens.
Weak investment is the signature feature and cause of the abysmal Obama “recovery.” The aggregate of all investments in the United States is Net Private Domestic Investment computed by the Bureau of Economic Analysis. Relative to GDP Net Private Domestic Investment (NPDI) was 7% per year from1960 to 2008. That average was 7 to 8 percent from 1960 to 1990, and 6.5 percent in the Clinton and Bush (W) years. But for the Obama years NPDI was an astoundingly low 2% of GDP!
Every single Obama year but 2015 was worse than any year from 1960 to his inauguration. This isn’t bad luck. If nothing changed in the economy, the likelihood of having a period as bad as Obama’s just by chance was 1 out of 1000.
The numbers for GDP and NPDI are interesting but still just lifeless statistics. The human toll is terrible. This comes in the form of teary-eyed parents telling their children there may not be much of a vacation this year or next and there may not be many gifts under the Christmas tree this year.
Horribly low investment is the predictable result of taxing investment and income at high rates. This terrible economic performance will continue until income and investment taxes are slashed. The government can still raise needed revenue with a broad base approach, eliminating all the special deductions and credits and allowing very low rates.
On the other hand, the sharply higher rates, a veritable bonanza of complexity for tax lawyers, and thousands more special deals in the proposals of President Obama’s anointed successor, Hillary Clinton, will predictably entrench lackluster investment and stagnant incomes.