Presidential Election 2024: Which Political Party is Better for the Economy?
Looking at the track record and ideologies of both parties with reference to tax cuts, income redistribution, deregulation, and more.
As one of the wealthiest demographic groups in the United States, Indian Americans are naturally tuned into issues related to financial prosperity, fiscal responsibility, and the ability to start and grow businesses. What often comes up in the political conversation on this topic is the popular Democratic rant against Republicans, criticizing them for their obsession with tax cuts benefiting the wealthy. This hits too close to home for many of us. Should we assert our right to protect and promote our wealth (tilting Republican) or should we embrace social responsibility and be willing to pay our proportionate share to the national economy (tilting Democrat)?
Comparing the presidencies of both parties on economic performance
When it comes to the battle of perceptions, the Republican Party is hands-down the winner on the issue of economic growth and wealth creation. It is easy to see that identifying with this branding can be enticing for many. Far too often, at social gatherings, I’ve heard successful Indian Americans proudly proclaim their Republican affiliations while disparaging Democrats as “leeches” living off of what they describe, with swagger, as “my hard-earned tax dollars.”
Is this deeply entrenched narrative that the Republican party is better for economic prosperity true? An objective study of the recent presidencies paints a different picture.
In 2001, Republican George W. Bush inherited a thriving economy with a healthy budget surplus from Democrat Bill Clinton. By the end of Bush’s second term, he had managed to decimate this thriving economy into the most severe financial meltdown in over 70 years. Long-standing American corporations in the auto and banking industries that were considered infallible global giants, were practically wiped out. Had they not been bailed out by the American taxpayers, they would have bitten the dust. The mighty American economy, the envy of the world, had collapsed—so much so that there was talk about the fall of the dollar as the world’s anchor currency.
Many economists attribute this disastrous performance to Bush’s aggressive tax cuts blindly inflicted upon an economy that was already suffering the wreckage of his very costly (and dubious) Iraq war.
When Democrat Barack Obama took office, he inherited this financial catastrophe from Bush but managed to rebuild the economy, doubling the stock market by the end of his eight years.
Then came Donald Trump, the Republican “savior” who, in talking about the economic progress he had forecasted for his term, boasted, “You’re going to be saying, ‘What do we do with all of this success?’” This man, who made similar bombastic promises of unprecedented job growth presided over a net loss of three million jobs—making him the first modern president to leave office with fewer jobs than when he began.
When Joe Biden took over from Trump, he inherited an extremely poorly managed crisis by the pandemic-denying Trump. And yet, since he took office, the economy has grown by approximately 22%, compared to 14% during Trump’s term. Today, the GDP is robust, and the stock market has reached new all-time highs.
[It is true that the current national mood regarding the economy has soured due to high inflation. However, economists have attributed it mainly to the trailing effects of the pandemic. Moreover, the success of the Biden administration is once again evident in the fact that the annual inflation rate has significantly decreased from its peak of 9.1% in June 2022 to 3% in June 2024.]
This pattern of superior economic performance under Democratic administrations is not limited to recent history. According to the Economic Policy Institute, a nonprofit, nonpartisan think tank: since 1947, key macroeconomic indicators such as GDP, job growth, business investments, household income growth, etc. have consistently performed better during Democratic presidencies. A 2016 study titled “Presidents and the U.S. Economy: An Econometric Exploration”—by the 130-year-old non-profit, non-partisan American Economic Association—found that, on average, the U.S. economy has grown faster under Democratic presidents than Republican ones since World War II. Specifically, the annual GDP growth rate has averaged 4.3% under Democratic presidents, compared to 2.5% under Republicans.
The myth of “trickle-down economics”
Since the Reagan era, Republicans have made “trickle-down economics” the bedrock of their economic policy. It is a theory anchored in the belief that tax cuts extended to corporations and the wealthy are the key to economic growth. When these entities on the top end of the financial food chain are flush with capital, the argument goes, they invest and create jobs, thereby stimulating economic growth, which, they claim, “trickles down” to the masses.
However, objective analysis has consistently refuted this theory. A 2020 study by the London School of Economics, covering five decades of tax cuts in 18 wealthy nations, found that such subsidies and tax benefits to the corporate sector and the rich have no significant positive impact on employment or economic growth.
It stands to reason that companies don’t hire prompted as much by the tax structure as they do by consumer demand. When there is a robust demand for their products or services, they hire—tax cuts or not. Conversely, no amount of tax cuts would incentivize hiring if there are no buyers for what they are selling.
At best, the tax structure can serve as a catalyst. But it cannot overshadow consumer demand—the “oil” that lubricates the machinery of capitalism. And consumer demand is a function of the 99%, not the 1%: when the masses are well off, economies expand; when the masses are hurting financially, economies
contract.
This is corroborated by a 2015 International Monetary Fund (IMF) report that concluded that increasing the income share of the poor and middle class leads to higher economic growth, while increasing the income share of the top 20% results in lower growth. That’s because more money remains parked in savings when it is at the top end of the financial food chain compared to the money that circulates in the economy in the form of consumer purchases when it is in the hands of low- and middle-income families.
Republicans’ reliance on trickle-down economics as their single-pony trick is not only ineffective but counterproductive. Is it any wonder that the historical track record has already proven its failure?
“Freeloaders” and income redistribution
Republicans often cast themselves as hardworking wealth creators, contrasting themselves with Democrats, whom they accuse of pandering to “freeloaders” seeking government handouts.
However, the reality is more nuanced. According to the Center on Budget and Policy Priorities (CBPP), about 8% of the federal budget goes towards “economic security programs,” commonly labeled as “welfare.”
Many recipients are low-income workers whose tax liabilities are nullified by deductions, yet they still contribute to the economy through payroll and sales taxes.
This is not to say that waste and abuse in the welfare ranks is not a concern. Yes, more can always be done to crack down on the real deadbeats who try to live off of the hard work of the majority of taxpayers.
But if one is truly concerned about “freeloaders,” it would be wise to also call into question the freeloaders at the top end of the food chain. According to the Cato Institute, a libertarian think tank promoting free markets and limited government, corporate welfare costs taxpayers almost $100 billion a year. Subsidies and tax cuts to large corporations “undermines the broader economy and transfers wealth from average taxpaying households to favored firms.” The analysis goes on to explain that such corporate welfare also risks promoting oligarchy by creating strong ties between politicians and business leaders. The street credo that Republicans are chums with industrial robber barons is not off the mark. And, finally, this unholy alliance between government and big business, rooted in trickle-down economics, also compromises consumer safety, worker’s rights, and environmental protection.
Small government and deregulation
Republicans have successfully branded themselves as the pro-business party, demonizing Democrats for excessive regulation. Sure, there are few things as frustrating as red tape, common-sense-defying codes, and excessive regulations for business owners. When building our office, I was peeved at having to spend more than $2500 for a water fountain installation, which was a code requirement. That’s because ours was not going to be a retail office or public space, and we saw absolutely no need for a water fountain in our small office.
So I get the frustration about government bureaucrats imposing all kinds of absurd requirements and restrictions on businesses and consumers. But compare these hassles to the vast number of lives saved because of regulations prioritizing workspace safety and consumer protections. Fear of lead poisoning has become a thing of the past, and compared to many Third World countries, Americans suffer significantly less fatalities from fire, auto accidents, poor design or quality of products, and so much more because of governmentenforced protections.
Libertarian-type free-market mavericks would have us believe that the competition of the marketplace would take care of such public safety and protection. But imagine where we would be without federal agencies like the Occupational Safety and Healt Administration (OSHA), the Food and Drug Administration (FDA), and the Environmental Protection Agency (EPA). Yes, one could write several volumes about the abuse, excess, and failures of these agencies, and yet, without them, we would be living in the
dark ages.
A sound financial policy recognizes that it is not always and only about the monetary bottom line. There is a reason why immigrants from largely unregulated countries are flocking to America—for a quality of life that can only come from a well-regulated society.
The so-called pro-business stance of Republicans springs from prioritizing greed over all else, and it can extract a heavy cost. A prime example of that is the 2008 financial crisis, which occurred after years of deregulation in the banking sector. Yeah
The “tax-and-spend Democrats”
Another thing that Republicans love to crib about is the “tax-and-spend Democrats!” It is true that Democrats favor a more proactive approach to governance, compared to the hands-off, almost laissez-faire approach of the Republicans. It is also true that there is far more potential for waste and inefficiency in government than in the private sector. While this is easily evident and often called out in political debates, what is taken for granted and rarely discussed is the vital role government plays in enhancing the quality of life and driving long-term economic growth.
The single-minded and overbearing Republican emphasis on tax cuts and small government comes at the expense of programs that enrich life, build vibrant communities, and invest in infrastructure, health, education, science, environment, nature parks, public libraries, to name just a few—initiatives that contribute not only to a higher standard of living but also to sustainable economic growth. Sure, cut down all these programs and you can have a small government. But what good is that? Some of the poorest countries in the world have small governments!
The party that proclaims itself as good for business and economy has, in reality, been ruinous for both.
Wealthy Americans are overwhelmingly Democrats
The U.S. Census Bureau reports that two of the most successful and affluent demographic groups in America—Jewish Americans and Indian Americans— are overwhelmingly Democrats. Some of the richest business leaders, including Warren Buffet, Bill Gates, Mark Cuban, Mike Bloomberg, and George Soros, are also Democrats. Could it be because these wealthy groups and individuals have come to realize that what benefits the 99% also benefits the 1%, not the other way around?
Parthiv N. Parekh is the Editor-in-Chief of Khabar magazine. Please write to editor@khabar.com to respond to this article. Letters for print consideration can be sent to letters@khabar.com.
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