Economy & Politics

US Election: Republicans or Democrats: Which Party is Good for Business?

Challenger Joe Biden wants to boost the economyimago images / ZUMA Wire

Every US president wants to make his mark on the economy, but not everyone could do what they wanted. Recessions, wars and the legacy of the predecessor have ruined many plans. The corona crisis was also not on President Donald Trump’s agenda. A comparison of the economic current account of men in the White House shows that according to various studies, Democratic presidents do better than Republican representatives in the White House.

The combined years of Barack Obama and his successor Donald Trump were the longest period of expansion in modern American history. The boom that Trump had promised – thanks to tax cuts, deregulation and better trade contracts – has not been reflected in the GDP figures. Economic growth under Trump was just as mediocre as it was under Obama and his Vice President Joe Biden. But both struggled with a severe slump, Obama in 2009 and Trump because of Corona 2020.

Party political patterns

Democrats and Republicans take very different approaches to economic policy. Democrats believe that reducing income inequalities is the best growth program. Therefore, they focus on the lower and middle income brackets. Households with low incomes are more likely to spend additional income on consumption than on saving or investing. That boosts demand. To combat a recession, Democrats typically increase government spending.

Republicans, on the other hand, follow supply-side economics, which is primarily aimed at businesses and investors. According to this, companies create more jobs when their tax burden falls, which in turn boosts the economy. Theoretically, the income from stronger economic performance gradually compensates for the initially lost tax revenue. The state should stay out of value creation as much as possible, prosperity comes from self-discipline, entrepreneurship, saving and investing.

Proximity to the company is no guarantee

According to studies, democratic presidents can show the better record. For example, the National Bureau of Economic Research for post-war America concluded that the economy under Democratic presidents grew by an average of 4.4 percent annually, compared with 2.5 percent under Republican leaders. “The difference in performance is remarkably large,” says a Princeton University study. From Harry Truman to Obama, the GDP of Democrats was on average 1.8 percent higher than that of Republicans.

Three Democrats in the 1960s and 1990s in particular stand out. Lyndon B. Johnson (1963-69), who headed 5.9 percent annual growth despite tight monetary policy and increased government revenue despite tax cuts. John F. Kennedy before him got 4.5 percent annually. He raised government spending to end a recession and accepted budget deficits until businesses hired. He strengthened the social system, but also lowered the top rate of income tax from 91 to 65 percent and laid the foundation for expansion until 1970. In third place, Clinton achieved an annual growth of 4.4 percent. Jimmy Carter (1977-81) is 3.4 percent. Obama, on the other hand, only has a cumulative 14 percent – 1.7 percent annually.

Among the Republicans, the ranks are led by Ronald Reagan (1981-89) with 3.9 percent and Richard Nixon (1969-74) with 3.7 percent, and Dwight D. Eisenhower (1963-61) with 3.3 percent, followed by Trump (excluding 2020) with 2.6 percent, Presidents Bush Senior (1989-93) and Junior (2001-2009) with 2.4 and 2.3 percent respectively, and bottom-up Gerald Ford with 1.5 percent.

Against crises and wars

But why are Democrats doing better? In part, it was because they had fewer crises to deal with. So the terms of office of Johnson, Carter and Clinton were not burdened by a recession. Among Republicans, Trump alone was spared drastic downturns and troughs – at least until Corona year 2020. Wars can damage the economy because they tie up political forces and resources, but they can also create growth in times of weakness. Bush Senior started the first Gulf War and a conflict in Panama, Bush Junior the war on terror in Afghanistan and Iraq. Democrats Carter and Clinton avoided war, among Republicans Ford, Reagan and Trump.

Political decisions of direction are usually tied to tax cuts by the Republicans and economic incentives for investment as well as redistribution to the welfare systems among the Democrats. Obama used both in his stimulus packages to deal with the financial and economic crisis.

According to Roosevelt, who created a record 21 percent more jobs in percentage terms, 18.6 million jobs were created under Clinton. In the fight against Nixon’s legacy of stagflation and high unemployment, Jimmy Carter brought it to ten million – about as much as Obama did during his tenure. In terms of percentage of jobs among Republicans, Reagan occupies the top: plus 16.5 percent – with doubled military spending, tax cuts and a record debt.

Fluctuating tax barometers

Trump lowered the top rate of income tax to 37 percent in 2018 and only taxed companies at 21 percent. But the calculation of relieving burdens on a booming economy does not always work out. There is evidence that taxpayers only spent two thirds of the 2008 George W. Bush tax gifts.

Clinton stands for ten years of economic growth after staggering taxes on top earners and companies (36 percent), subjecting welfare systems to targeted reforms, cutting government spending and signing a free trade agreement with Canada and Mexico.

Obama ended the recession of the financial and economic crisis of 2008 with an economic stimulus package, increased unemployment benefits from 2010 and raised taxation on income and capital gains. Most of the $ 787 billion package had been pumped into the economy by the end of 2011. The upswing achieved a robust 3.7 percent growth in the first quarter of 2010. Although a program of tax cuts of more than $ 850 billion for additional stimulus followed, GDP growth remained modest.

While Trump then wanted to generate more economic dynamism with further tax cuts and deregulations, he also initiated – in view of the Corona crisis – a billion-dollar program to support the economy. Government stimulus programs, which laissez-faire Republicans usually hate, are more of a Democratic toolkit. This is how Roosevelt fought the depression in the 1930s.

Growing mountains of debt

In retrospect, Democratic presidents have accumulated no more mountains of debt than Republicans as a result. Most recently, both Obama and Trump bought moderate economic growth with high national debt. Under Obama, the mountain of debt grew considerably after the financial and economic crisis. The trend remained unbroken under Trump: His tax gifts and additional spending made the mountain grow further.

Although Republicans advocate stricter fiscal discipline, history doesn’t prove them right. Every Republican president drove up debt. Reagan doubled it, as did George W. Bush, to name just two examples.

Stock bloom among Democrats

The stock market is not the domain of Republican presidents either. Democrats have a better record here too. In purely mathematical terms, $ 10,000 invested in the Dow Jones Industrial Index in the Republican-led period since 1900 would have brought in an annual return of 4.0 percent – the bottom line was $ 100,000, according to a calculation by the Financial Times. In the years of democratic rule, however, the investment would have grown to $ 430,000, with an annual return of 6.1 percent. Technically, the stock exchange would have done four times better under democratic presidents.

In any case, experience shows that the economic situation and the mood on the financial markets have a strong influence on the outcome of elections. Since 1952, six presidential elections have fallen into recession or bear market, or a combination of both – and in each of those elections the incumbent has lost. However, if the economy and the capital markets were doing better, 13 out of 16 incumbents were re-elected in election years.

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