Election impact on the economy
By Mark Green, Executive Editor
What will the results of Tuesday’s historic election mean in Kentucky? Here are a few initial thoughts, and generally the policy changes being discussed could benefit the commonwealth.
INFRASTRUCTURE = JOBS JOBS JOBS
Kentucky could benefit in a big way if President Trump take steps such as imposing tariffs, ending global trade deals and changing tax incentives that lead U.S. product makers to put their operations outside the country for lower labor costs, which are always one of if not the biggest cost factors business has. Kentucky is a manufacturing state, it is favorably situated logistically within a day’s transport of the majority of the U.S. market and IT HAS THE LOWEST AVERAGE WAGES IN THE UNITED STATES in a pay comparison map I saw within the past week. Whether they are forced to move operations back to the U.S. or just do so on a pre-emptive defensive basis, Kentucky is going to be one of the first locations everyone considers.
There is growing agreement that the nation needs to improve the general infrastructure that allows commercial activity to take place: we’re talking roads, bridges, airports, the electric grid, ports, rail systems, and then the newer kid in town: the Internet, specifically nearly universal high-speed high-capacity connectivity. Northern Kentucky needs to replace the Brent Spence Bridge that conveys I-75, one of the primary north-south vehicle freight arteries in the nation, across the Ohio River. That is probably a $2 billion project right there.
The U.S. president-elect and Kentucky elected officials talk very loudly of bringing coal jobs back, but the economic reality in an age of cheap oil and natural gas is that this is not going to happen. Unless coal’s champions can raise the price of oil and natural gas, Kentucky’s coal mining operations are not going to increase. A more realistic move, however, would be to bring infrastructure projects to Eastern Kentucky, such as the Mountain Parkway project that is now underway and the KentuckyWired project to bring high-speed Internet connectivity to all 120 counties, beginning with Eastern Kentucky. Both of those are multihundred-million-dollar projects.
If lots of jobs do come to the state, we don’t necessarily have enough workers, especially skilled workers. But an increase in jobs could mean Kentucky natives returning home and non-natives moving to the commonwealth. That could stimulate home construction, however, and that stimulates most of the other sectors of the economy.
Kentucky began working under the Beshear administration to improve its workforce development training systems and this is a very high priority as well of the Bevin administration. If the state is successful in producing the skilled workers the private sector has been asking for, it is possible for the Kentucky economy to enter a virtuous cycle of growth that would make it easier to do something about another key issue…
#1 – TAX REFORM!!
Candidates have been saying it for decades … literally everyone is in favor of it, but no one has been brave enough for many years to present and advocate an actual plan because it makes one a target, and targets catch all the arrows! This has been the case especially since the age of negative campaigning arrived 25-30 years ago, because – for better or for worse – negative campaigning works
That said, Frankfort and Washington, where, upon inaugurations in December and January, all the levers of power are in the hands of the Republican Party, both say they absolutely will pursue tax reform in the coming year. For the first time in around a century, successful people from the business sector are the chief executives; Gov Matt Bevin and President-elect Donald Trump, are nothing if not numbers guys. And they are certainly willing to aggressively take on and change the status quo.
Both say they want lower income taxes and corporate taxes. Gov Bevin says he is very open to ELIMINATING Kentucky’s income tax. The difficulty will come in squaring this with the state’s need to have a balanced budget, and maintaining the efforts begun in the current budget year of paying down Kentucky’s unfunded pension liabilities.
Seemingly this means property tax and sales tax especially will have to increase. Is that politically doable? I think so, since “income tax,” which is equated with punishment of work, for many years has been steadily and successfully vilified by the party that is now in power. A majority of people probably are willing to trade more sales tax for low or no income tax.
This probably leaves education funding worse than it is now.
#2 – REPEAL OF OBAMACARE!
Meanwhile, the healthcare sector, fully ONE THIRD of the U.S. economy, is in for major disruption! Obamacare is about to have its plug pulled.
The wise men who run major healthcare provider networks say that costs must be wrung from the system regardless of whether there is Obamacare or not. Costs have been going up for decades – rising healthcare costs were the top presidential campaign issue in 1992 when Bill Clinton was first elected 24 years ago! But those costs have only gotten higher and taken away more and more of private sector profits and households’ disposable income while increasing government budgets and deficits to ever more alarming levels. Obamacare has been tried, and the financial pain has worsened. I think we are about to find out the impact of repealing Obamacare.
There is talk of opening up state and even national borders to allow buying prescription from Canada, Mexico and elsewhere where medicines are a fraction of their costs in the U.S., and of ending the practice by which insurance plans are offered on a state-by-state basis. This insurance move would speed up the already active process of consolidation into major provider networks and move it into multistate realm.
. . . . . so, more disruption for the healthcare sector.
#3 REPEAL OF DODD-FRANK
The other big impact on the economy of this election is going to be repeal or major reform of the Dodd-Frank Law, which was enacted in 2010 and STILL is not fully implemented – (like Obamacare, it tried to do too much at once, which made it too complicated to manage and implement). As of a year ago, around 40 percent of Dodd-Frank rules still had yet to be written by federal bureaucrats whose job it is to implement what Congress says is law.
What Dodd-Frank has done is made it harder to get loans. My wife and I bought a house three years ago and we’re now doing major home improvements and I can tell you it’s a more difficult experience getting money today than before. The business and the banking community have been complaining A LOT for 3-4 years about the difficulty in getting and making loans under the tighter standards of Dodd-Frank. And Kentucky’s community banks have had to spend more money and hire more staff specifically to comply with regulators’ demands for more information.
Repealing Dodd-Frank is the move that will improve moods and quickly boost business activity and profits in Kentucky.