tv Washington Journal Mark Zandi CSPAN February 7, 2020 3:07am-3:37am EST
a.m. for relief aid for puerto rico. at 6:00 p.m., tulsi gabbard speaks at townhall meeting in new hampshire. on c-span2, more from the campaign trail with senator bernie sanders. at 1:20, the political state solutions conference. portionn3, the morning of the state solutions conference with more from state governors. chester,g us from west pennsylvania, the chief economist here to talk about the u.s. economy and its outlook. thank you for joining us. >> thank you for having me. >> you probably heard the state of the union, the president made claims about his influence, how takecredit can a president
about the state of the economy? president take about this economy? guest: if you totaled up the impact of his economic policies on the economy since he has been in office, they are a wash. some good, some bad. the trade war has done damage. up tax cuts used up juiced growth temporarily because they were deficit financed. the regular -- the regulatory policy is neither here nor there. net zero impact on the economy. host: one of the things that he points to in the state of the union and other focht errors -- factors is the stock market. factor that in. guest: the stock market is at a record high, and that reflects a number of things. one thing is the tax cuts. there are very large tax cuts for businesses, of course we had to borrow a lot of money to pay
for them, but they go to the businesses' bottom line so the after-tax profits are higher. the other is very low interest rates, and the federal reserve, which is one of the key institutions that control short-term interest rates lowered them significantly last year in response to the ill effects of the trade war, which helped juiced up stock prices as well. the stock market has a life of its own and i think it is taking on a life of its own. you have a lot of momentum players and other folks that are in the market trying to make a quick buck, and that feels like it is starting to impact the market. a lot of things coming together but the stock market is doing well. host: there are several stories including one on cnbc about taking a look at the current economic picture and protecting forward. -- ford. some say that the chances of recession are more as a year
goes forward, or in the next six months. where are you in that possibility? guest: it is about even. when the president called a truce in the trade war, the odds fell significantly, what are not inconsequential, -- but they are not inconsequential. if anything meaningful goes off the rail, recession chances increase. recession odds are less than even but uncomfortable. if you said, mark,, up with a come up with a, number, i would say in the next 12 months. host: if you want to ask him questions about the economy. 202-748-8001, republicans. 202-748-8000, democrats.
.ndependent, 202-748-8002 host: a lot of what debt -- what gets discussed is wages, what are those contributing to the conversation? guest: wage growth has picked up during president trump's administration, and it depends on what statistic you look at it is between three and three point 5%. inflation is about 2%, so people are getting real wage gains, which is good. havether thing is that we seen stronger growth for folks in the bottom part of the income distribution. some of that is related to minimum wage hikes, but it does reflect a strong job market. people have been disappointed about the wage growth, it has what we haven experienced historically when we have had a labor market when unemployment -- with
unemployment this low. i think this goes to a very weak productivity growth. at the end of the day, are after inflation wage growth will be consistent with growth and productivity. if productivity growth is slow, and it has been, it means wage growth will be low, and that is what we are seeing. in general, wage growth has picked up as the labor market improves. host: if there is a slowing in growth, can you explain what it is? and why you see a slowness? guest: that is a complex question. producingty growth is more without working as hard. at the end of the day it goes to our standard of living. you want to produce more things but we do not have to work -- do not want to work more hours or harder. that is productivity growth. if we have strong gains, life is good. people are making money and wage
growth is improving and companies are making more profits. governments are generating more tax revenue, and we need the stronger productivity growth. since the crisis, it has been about halfr annum, the growth we had experienced per annum between world war ii and the financial crisis. that is a big comedown, and there is no smoking gun answer. i think one key answer is that the aging of the population, so folks like me, i am a boomer, closer to retirement than going into the workforce, and that aging had impacts on growth and productivity. i am not adopting the technologies as quickly. i am not embracing them in the same way as the millennial generation for generation z,
just coming into the labor force. that is having an impact on productivity growth. it does not augur all that well for the productivity growth in the next five to 15 years because the boomers will be in the labor market for some time, so this will be a constraint for at least the next decade. host: this is mark zandi joining us from moody's. our first call comes from baltimore. this is michelle, the democrat'' line. caller: hello, thank you for c-span and addressing the issue that we are living on borrowed money. the economy is not doing as well as they try to portray it to be. my question is about the tax cuts. i am 58 and this is the first time i will have to pay taxes. i have always gotten a refund because they take out extra. because i live in maryland and i
cannot claim the full amount of my state collapse -- taxes and interest. i am actually having to pay taxes for the first time in my life, even though i have them take out additional taxes. i want to ask you about the real cutst of the so-called tax on the middle class, and about the tariffs. how do you think we are doing? because we are borrowing money to pay for the tariffs, so i would like to get your thoughts about that. guest: you make a good point about the tax cuts. the benefit is uneven, clearly the bulk and the benefits went partlks in the top -- top of the income distribution. people with high net worth relatively well flee. the real -- the lower you go down, the less the benefit. as you point out, because of
changes around certain types of l.t deductions,. in some parts of the country, i think you said baltimore. in the northeast in particular, parts of florida, and these are parts of country and these are parts of the country that enjoy those benefits. those went away in a tax-cut change and that is why we are seeing the tax-cut rise. uncommon for many taxpayers. uneven,cuts were very and the tax cuts i mentioned earlier were very important, and they benefited businesses even more significantly, especially large corporations. tariffs, the tariffs are like a tax increase.
or not, on the american people. we the nation, put a tariff on china and other trading partners. somebody has to pay that. it could be the foreign companies shipping the product here, or it could be american businesses buying the product, or it could be american consumers if the businesses that have to pay the higher price pass that through. so, there is a lot to state about this, but the research we are getting based on the data points we have projected since the trade points began indicate very strongly that it is the american consumer that is paying this. this is effectively a tax increase on you and i as consumers when we go down to walmart and target, or online when we shop. we are paying as much as -- more than we should have.
i may not have the numbers exactly right, but we are up to 80 or $90 billion per annum in tariffs being paid by us, so the tax increase on us, so if you take the tax cuts that the president provided back in 2018, if you take the tariffs and the tax increase and bring it together, for a lot of lower and meant -- and middle income americans, the net payoff is more. it depends on a lot of assumptions, but it depends more on in us -- on an assumption on that. host: there is a story that the trade deficit has narrowed for the first time since 2013. china is in third place behind mexico and canada as far as trading partners are concerned. what do those numbers mean in terms of the economy? deficit has not budged as much in the last 10 years. it has improved a little bit.
that goes to the trade where it did a number on global trade. of importsacts compared to exports. i would not read too much into that. if i showed you a graph of the trade deficit over a long period of time, it eroded sharply in the 2000s until the financial crisis. since the financial crisis, it has been flat. country to -- vary country, and it is down against china, because we have been engaged in a trade war. we jacked up tariffs on the products. what we mean is that the trade deficit will increase, because companies will redirect to they do business with starting to get around the tariffs. notnet, these tariffs result in a smaller trade deficit. but it will mean is less trade,
so we will do less trade with the rest of the world, which is definitely not a good thing, because trade is very good for our economy and us as consumers, it rings down prices, gives us choices -- brings down prices and gives us choices. we want more, not less. host: houston, texas. william, go ahead. caller: good morning everyone. i'm still waiting on the tax-cut and i have not gotten it. i have family members from income levels from 10,000 to $1 million. people that earn $50,000 or less, what was the real increase or tax break that they got, and state, andof local,
municipal tax increases always ending up being a net loss? $25,000 a year, do you get an increase in rages -- and wages, and you are still losing. is that -- can you tell me what the tax credit was for a person making $50,000 or less. thank you. have a blessed day. guest: it is a complex question because it depends on the individual and their circumstance. it is hard to know. broadly speaking, i think it is fair to say that the tax-cuts that were implemented back in 2018 were mainly targeted towards businesses, corporations, and high net worth households. there were tax cuts for middle income households and less for lower income households. depending onvaries
what year we are looking at. the impact could be different in 2018 the and 2019, and going forward. is other thing to consider under current law, the tax cuts for all of us go away in 2025, so the way the tax-cut was designed was that it would be in place for a temporary period, and then go away. that is current law. unless some future president and congress change that law, we will have tax increases come the middle part of this decade. host: to that end, there are stories about amazon paying a 1.2% tax rate on $13 billion. can you put perspective on that? guest: these are multinational corporations and they have a lot
of tools at their disposal for trying to avoid taxes. changed,re the tax law many companies were not paying much if not at all in tax. that got easier after the tax-cut. before the tax-cut, the top marginal rate was 35% of their profits were taxed. those large corporations did not pay that because they could figure out ways around it, but that was the top marginal rate. now, the top marginal rate is 21%. obviously, these companies are paying a lot less even if they do not use tools to get around it. they are still using the tools and getting around the tax payments. if you look at the effective corporate tax rates. you take all the tax revenue that you are generating by taxing american businesses and
divide by all the prophets they make, that is the effective tax or 9%, so getting lower. host: massachusetts, independent line. bruce, good morning. caller: thank you for taking my call. my question has to do with the fact that many politicians claim that entitlement programs are the biggest driver of our deficits were government spending. as far as i understand, social andrity is funded by taxes paid by employers and employees, and is self funding. i do not understand, and perhaps your guest can explain, how you can link that to deficit spending. thank you. programs, entitlement the big ones are social
security, medicare, and medicaid. with regard to social security, byt is paid for largely payroll taxes. it is not adding to the deficit. for many years up until now we were collecting more in payroll tax than we were spending out on benefits on social security. so, there is a lot of built-up savings that could use -- that could be used to help financial security going forward. if you do a little bit of arithmetic and given the demographics, social security will not have the resources. it will blow through them 10 or 15 years from now. there has to be tweaks to the program. either we change the payroll tax , and one proposal there is to increase the cap on the income level that is tax. payrollw you only pay
tax up to $136,000 on an income. make a certain amount of money, you are not paying payroll tax, or you tweak the benefits. i am using the word tweak, because these are on the margin. i do not believe there needs to be a wholesale change in the benefits we provide under social security. that is something that we can solve in a straightforward way. medicare and medicaid are more difficult. that goes to the rising cost of health care. health care costs, historically, has grown rapidly for many different reasons than overall inflation -- over inflation. since obamacare was put in place that help to reduce the costs and they still grow relatively quickly, and if you do a little bit of arithmetic, there will be a problem. we have to address that. i do not do that with a problem
with the entitlement program. medicare is great, medicaid works wonderfully. obviously, they are helping lots of people and people like them. i view this as a problem with our health care system and trying to address the root causes for the continued rapid growth -- growth. we have to address that. if we solve that we will solve the problem with medicare and medicaid. host: we have a viewer off of twitter asking about interest rates. and, if you think they might start to rise. anst: well, it is always intrepid thing. i forecast a lot of things, interest rates are tough. i do not think -- it depends on your horizon. caller isnow if this focused on the next year thinking they want to buy a home. you are in shape for the next
six months, the economy is ok but not growing fast. there are a whole -- not a whole lot of inflationary pressures and we have risks like the ononavirus that will weigh growth. i think interest rates remain low. maybe the caller is thinking about buying a home. the 30 year fixed rate mortgage 3.5%,is going for about which is about as good as it gets. if you are thinking about buying a home it is a good time to do it. i do not think they will go up in the next six to 12 months, given all the things that are going on. i will throw into the mix the election itself. since we are a polarized country, and the president's policies are so different than any of his rivals, there will be a lot of uncertainty, which will probably weigh on the economy and interest rates.
if you are thinking about buying, you have a window that extends through much of the year. host: moody's does have an election prediction unit. it predicted that the president where doeseelection, that stands today? guest: that would be me and a group of economists. we do this every four years. right now you can make three assumptions. one, the economy on election day performs as well as is -- as it is today. two, the president's approval rating is roughly the same. fore, turnout is average , so going back to the 1970's. if all three hold true, president trump will win reelection. if you are a democrat, let me just say, if you change one of
those assumptions, turnout. ,f turnout is high for the d's even if the, approval rating is the same in the economy is the same, thed's -- the d's will win. this will boil down to pennsylvania, michigan, and wisconsin. it really boils down to about five counties in and -- in pennsylvania. two around pittsburgh, and purple counties. two counties in the northeast around wilkes-barre. that is trump country. and then one county in the southeast pennsylvania, where i live. chester county. i often joke that this entire election revolves around one person, my wife. host: let us go to gaithersburg,
maryland, democrats' line. caller: hello, i do not know if you can hear me. my question -- i have two things. one is gdp. when president trump got elected there were predictions that the gdp would go through the roof, it would be at 5% and etc., and i was skeptical, not because of him, but because i did not understand how something as far as i understood was composed of productivity in the workplace and the number of people -- here, andave boomers it felt like there was a natural cap to gdp until the boomer generation is out of the system. then, the next thing, i am hearing a lot about liquidity
being pumped into the markets to keep them artificially high, and that could result into big troubles soon enough. i want to know if that is true. host: thank you. guest: that was pretty good, very good, actually. growing,my has been gdp growth, about 2% per annum since this economic expansion began over 10 years ago. the tax cuts that were put in place in 2018 juiced things up temporarily. growth under 3%, and that was a stimulus. we went out and borrowed money from global investors and that was reflected in a larger budget deficit. we took money we borrowed and we
cut a check to companies and american households. people went out and spent some of that and that juiced things up. as that benefit faded, the stimulus has gone away and the economy is growing at 2% again. in economy grew off of 2.3% 2019. by the fourth quarter, it was growing 2% on the nose. that is where we were, and that is where we are going to stay unless we make changes. the cap no natural cap, is our imagination, ability, and willingness to change economic policy. i will give you a couple of did, would, if we result in sustainable, higher, long term growth even with the boomers. that is a slamdunk. -- first, is infrastructure.
that is a slamdunk. there is not an infrastructure in the project that does not have a return higher than 1.5%. we should be all in on that, because that will improve productivity because that will get productivity up. high-speed internet for everybody, that will improve product to buddy. the second thing is to have more immigrants. immigrants are not only important because they are key to filling the jobs that are going open in many industries across our nation, agriculture, leisure, hospitality, retail, more importantly they are key to productivity growth. immigrants by definition are risktakers. you do not leave a place unless you are willing to take risks, and those are the kind of people who start businesses, that innovate and drive the economic
train. one thing that distinguishes the american economy from any other economy is a willingness to innovate, which goes back to immigration. if we want stronger economic growth we need to figure out a way to increase the number of immigrants, not restrict the number. host: mark zandi is the chief economist for moody analy >> c-span's "washington journal" live every day with news and policy issues that impact you. coming up this morning, illinois republican congressman rodney a securitydiscuss and then congressman blumenauer talks about the future of health care. watch c-span's "washington live at 7:00 this morning and be sure to watch "washington journal" next week as we feature local museums.
networks -- the u.s. house meets at 9:00 for work on relief aid for puerto rico. tulsi gabbard speaks at a town hall meeting in somersworth, new hampshire. on c-span2 at 9:30 a.m., we hear more from the campaign trail from bernie sanders. he will be at saint anselm college in manchester. the afternoon session of politico state solutions conference at 1:20 p.m. c-span3, at a: 20 a.m., the morning portion of the state conference. >> president trump delivered remarks at the national prayer brought list in washington, d.c. on thursday. when he arrived, he raised up the newspaper with the headline -- acquitted.