The U.S. Economy and ‘Neighbor Envy’

By 

James Freeman

Jan. 16, 2019 2:14 p.m. ET

Chinese dictator Xi Jinping welcomes President Donald Trump outside the east gate of the Great Hall of the People in Beijing in 2017. PHOTO: XINHUA/PANG XINGLEI VIA GETTY IMAGES

This could get awkward. Former Obama economic advisers who claimed tax reform wouldn’t work have been miserable enough watching U.S. growth defy their predictions. Now they may have to watch other countries repeat the U.S. success as governments overseas consider lowering their corporate income tax rates.

“We expect to see a wave of global fiscal policy in 2019,” writes Dan Clifton of Strategas Research in a note to clients. “There is a global race for capital taking place and with non-US growth slowing, voters are unhappy. Politicians will need to deliver growth in 2019.”

Foreign politicians are under particular pressure because the tax law enacted by a certain U.S. politician is making them look bad. “US growth accelerated in 2018 while other regions slowed. This creates neighbor envy and more countries are looking to cut taxes,” adds Mr. Clifton.

This column does not know if the American Psychological Association has rigorously analyzed the phenomenon of neighbor envy. It seems to be associated with a healthy desire to attain the same freedom and opportunity currently enjoyed by both masculine and feminine Americans.

Many journalists of both genders may find it shocking to imagine that a signature policy of the current U.S. administration could be embraced rather than shunned in foreign capitals. But even the old-fashioned communist now running the Chinese government seems driven to consider the need to compete. Michael Smith writes today in the Australian Financial Review:

China has put private sector tax cuts at the frontline of president Xi Jinping’s battle to combat a slowdown in the world’s second-largest economy with a package of rebates for millions of small companies economists say is worth 2 trillion yuan ($410 billion)... China also outlined tax rebates targeting the manufacturing sector and higher tax deductions for research and development spending by companies.

... Mr Xi flagged tax cuts and financial aid for struggling private companies in November after telling a group of the country’s top entrepreneurs worried that the ruling Communist Party was abandoning capitalism in favour of more government control over private companies and advantages for state-run enterprises.

Obviously broad-based tax reform with a big rate cut for everybody would be preferable to rebates for particular types of businesses, but Marxist central planners should perhaps be graded on a curve. And they might consider taking a whack at the country’s overall 25% corporate tax rate. Yang Zhiyong of the Chinese Academy of Social Sciences writes in Beijing Review:

B