The Journal Gazette
Thursday, October 08, 2020 1:00 am

Market forces

Examining numbers dispels popular myths about presidents and stocks' performance

Vince Heiny

I often hear that Donald Trump has been good for the economy and the stock market as a rationale to support him or ignore other obvious concerns.

The S&P 500 market performance of the past four decades, ranked from the presidencies of Ronald Reagan to Trump, refutes this claim, as seen in the chart presented here. The market performance on Trump's watch is substantially below that of Barack Obama and Bill Clinton.

Likewise, the market numbers do not support a claim that Republicans generally and Trump in particular are better for the economy and stock market. The worst stock market performances of the past four decades have all happened under Republican presidents. It is a myth to state, at least in recent history, that Republicans have been good for the stock market.

Facts are stubborn things, as John Adams once said.

A major driver of market performance is earnings per share. Earnings per share increased under Trump as a result of the reduced tax rate on corporate income (see lower portion of chart). During Obama's term, on each dollar of corporate income, a business paid 39 cents in tax and had 61 cents left for earnings per share.

At Trump's reduced rate, that same dollar of earnings left 79 cents in earnings per share, an increase of 18 cents (or 29.5%). During this same four decades, no substantial tax rate reduction occurred under any president other than Trump.

Therefore, almost half of the increased market performance under Trump is attributable solely to the increase in earnings per share – not real growth. The Trump tax cut raised market performance without growing the economy or jobs.

Who benefited from the increased earnings-per-share under Trump? And who paid for it?

The increased earnings went to corporations and the nearly 55% of Americans who own stocks (according to Gallup as of June 2020); the lost revenue was made up by increasing the debt burden on all Americans.

We now have trillion-dollar deficits per year as far as the eye can see (unrelated to the additional deficits incurred with COVID-19 spending). These deficits will be paid for by all of us and our children, grandchildren and their descendants.

There used to be a political party, mine for many years, that at least professed it was concerned about deficits. Except whenever it got in power.

Vince Heiny is a Fort Wayne attorney.

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