Trump’s Economic Agenda: Mostly, More of the Same
Republican presidential nominee Donald Trump gave his first major economic address on Monday. Most of the speech was devoted to putting forward a more or less standard set of Republican policies — Trump promised large tax cuts that would primarily benefit higher-income taxpayers, ending the Affordable Care Act and curtailing government regulation. But he also broke with Republican orthodoxy, rejecting the Trans-Pacific Partnership, proposing renegotiating NAFTA, and vowing to take a firmer stance on currency management and other issues with our trading partners.
What would some of this mean in practice?
The proposal for tax cuts would put in place a system with three tax brackets of 12%, 25%, and 33%. Trump didn’t indicate the cutoffs for the brackets, so it’s not possible to determine how much the different groups would save. However, it is certain that the highest-income taxpayers would save under the Trump plan.
Currently, high-income taxpayers pay a 39.6% tax rate on income over $415,000 for a single individual. If a high-level executive or Wall Street trader makes $2.4 million a year (roughly the average for the richest 1%), they would save $120,000 from their tax bill just on the reduction in the top tax bracket. For the richest 0.1%, the savings would average almost $700,000 a year.
Trump also called for large cuts in the corporate tax rate. Currently, corporations pay on average a bit more than 25% of their profits in taxes. Trump committed to a tax code in which no corporation would pay more than 15% of its profits in taxes. This implies a reduction in revenue from the corporate income tax of more than 25%, or a loss in revenue of close to $100 billion a year.
These tax cuts are virtually certain to lead to large deficits, as occurred with previous tax cuts under President Ronald Reagan and President George W. Bush. Trump has also proposed a substantial boost to infrastructure spending (although, while more spending on infrastructure is badly needed, this will further boost the deficit).
Trump has suggested he will address the deficit by reducing waste, but presidents from both parties have promised to reduce waste for decades. Unless he is prepared to make large cuts to programs like Social Security, Medicare, or the military, it is inevitable that his tax cuts will hugely increase the budget deficit.
Some increase in the deficit would actually be a good thing, because the economy has not yet replaced the demand lost when the housing bubble burst. However, Trump’s plan almost certainly goes too far and will lead to high interest rates and/or serious problems with inflation.
Trump’s attack on government regulations, meanwhile, are an illusion. While some regulations surely are wasteful, the vast majority serve important purposes, like keeping lead out of the water our children drink. The Dodd-Frank financial reform bill has been a particular target of Trump and other Republicans, yet small businesses report that credit has never been easier to get.
Meanwhile, the Affordable Care Act, which Trump promises to repeal, has given insurance to millions of people. And contrary to Trump’s claims, there is no evidence it has cost jobs. In fact, job growth accelerated after the ACA took effect.
Arguably, though, Trump’s position on trade is the most interesting of the policies he has outlined. We would benefit from having more balanced trade, which could create millions of jobs, mostly in manufacturing. However it is not clear that Trump knows how to get there.
He complained about countries not honoring our copyrights and patents. However, more royalties for copyrights and patents are a tradeoff for a larger trade deficit in manufactured goods. In other words, if we make China and Brazil pay more money to Microsoft for Windows and to Pfizer for its drugs, then they will have less money to buy our manufactured goods. Trump does not seem to appreciate this trade-off and is promising that everyone will get more.
On the whole, the Trump agenda looks like the Republican agenda that we have seen many times before: It centers on large tax cuts for the wealthy and corporations, something that has not worked in the past to create either strong growth or rising living standards for working people. And while Trump does offer a qualitatively different perspective on trade, it is too contradictory to be able to determine if it will actually benefit ordinary workers.
This column originally appeared on CNN.