Trump Urges Yuge Tax Cuts and New Debt (Sep. 16)

Mike & Co. —

In a speech before the Economic Club of New York yesterday, Trump laid out a passably detailed economic plan.  Some of the speech provides marginally clearer outlines of previously stated tax policy.  The rest of it walks back the most egregious and heavily criticized aspects of his las major economic policy address in Detroit a month ago. 

 But does the new plan make any more sense than the prior ones, from a fiscal and economic standpoint?   We summarize the Trump Plan and take a cut at answering these questions, below.

 Good weekends all, 

 Dana

———-

The Plan, which Donald has dubbed “Americanism,” is framed as a rejection of globalism and a shift in focus to “America first” policy goals. Once again relying on trickle-down economics, the plan calls for huge tax cuts. By his own estimates, it would add $4.4 trillion in debt in ten years while depending on a growth rate of at least 3.5 percent, a figure generally considered by the vast preponderance of professional economists impossible to achieve and sustain in the United States.

 Jobs

Trump claimed that his economic plan would create 25 million new jobs over the next decade — made possible through the elimination of many regulations which he believes costs the United States trillions of dollars. Trump proposes lifting all restrictions on American energy production, including the Waters of the United States Rule, and the Clean Power Plan.

Trump says that these regulations cost the United States $7.2 billion in yearly revenue and by removing these obstacles the US energy sector would be able to grow significantly.  That’s an infinitesimal amount in a $3 trillion economy.  

Trump would also:

• impose a moratorium on any new regulations not compelled by Congress or necessary for public safety
 
• streamline the energy infrastructure permitting process to speed up the current system and to allow more projects to be approved
 
• Trump also announced plans to dismantle Dodd-Frank, audit the Fed and replace Janet Yellen

Under his plan, the Secretary of Commerce would be tasked with compiling a list of countries whom are violating trade agreements, and will “use every tool in American and International law to end these abuses.”  Accordingly, Trump promises/threatens to: 

• officially declare China a currency manipulator and 
 
• apply counter-veiling tariffs and WTO trade casesagainst the country until the situation is remedied

The Trump campaign says it expects that these changes will encourage domestic manufacturing growth to stimulate job creation amounting to 25 million additional jobs in 10 years.

 Taxes

 Trump’s plan implements major cuts to current tax rates.  It reduces the number of income tax brackets from seven to three.  

• households making less than $75,000 per year would pay 12 percent
• households with a joint income of between $75,000 and $225,000 would pay a 25 percent rate 
 
• households with income of over $225,000 would per year pay 33 percent
 
This brings him in line with the House Republican Blueprint, from his previous maximum of 25 percent. 
 
•  families considered “low income” will be totally removed from the tax rolls, though no definition of what is considered “low income” is provided
 
• imposes caps on almost all forms of personal deductions to $100,000 for individuals and $200,000 for couples filing jointly

The proposed plan lowers corporate tax rates to 15 percent.  In a major change from previous statements, pass throughs, about half of which are small businesses, are not included in the 15 percent tax, and would be forced to pay taxes as high as 33 percent. This will likely be very unpopular with small business.  It also :

• seeks to end deferral of taxes on foreign income and apply a 10 % repatriation tax on overseas assets
 
• authorizes US-based manufacturer’s to expense fully  and up front the costs of new plants and equipment in exchange for not being able to deduct interest expenses
• repeals the Alternative Minimum Tax, the estate tax, and the carried interest break

The new plan also carries changes for family care.  It furthermore 

•  would allow families to deduct the average cost of child care entirely from their taxes, and claims that his could save families making $50,000 dollars a year 35 percent on their current taxes, and families making a combined income of $75,000 saving up to 30 percent
 
• introduces an Expanded Earned Income Tax Credit through a childcare rebate with a matching $500 contribution to savings accounts
 
• elaborates on new tax free dependent care savings accounts that parents may establish for children and the elderly. 
 

According to Trump’s own estimates these plans will cost $4.4 trillion in tax cuts, which he claims will only be $2.6 trillion when using a dynamic growth rate model of 3.5 percent growth per year.  This replacement rate estimate is so outlandish that it invites refutation. 

 Growth

According to his economic experts, Trump’s plan will lead to 3.5 percent growth average over 10 years.  Trump  said that he wished to set a national goal of four percent growth per year, which he admitted that even his experts did not believe was possible.  He claimed that through his tax plan and deregulation, as well as re-negotiating trade deals, this growth rate —  a level that the US economy has not sustained over a decade for at least a century, if ever — is possible.  

Per Trump, current regulations costs the United States trillions of dollars, and are reducing the average American family’s income by $15,000 dollars. The plan relies entirely onthis economic growth to finance the proposed tax cuts, and says that if 3.5 percent growth is achieved the plan can pay for itself, and if four percent growth is achieved will begin to reduce the deficit. 

Deficit Impact

According to common accounting, Trump claims that his plan will costs 4.4 trillion dollars. Trump claims that using a dynamic growth model to account for the economic growth that will come from his reforms, the plan will somehow be drastically reduced to only $2.6 trillion.n Trump also claims that his regulatory reforms will save the government an additional $1.8 trillion. According to Trump this will bring the cost down to $800 billion.

He additionally proposes a “penny plan” which will save 1 cent from each federal dollar spent on non-defense and non-entitlement savings, which he claims will save the government $1 trillion over the next 10 years.

According to Trump’s analysis these goals are achievable if the country maintains 3.5 percent growth as his plan calls for, and if growth exceeds that it will reduce the deficit. However, in his speech Trump has also called for additional spending in the form of building up the military and investing in infrastructure. None of these plans are put into any detail and no plans to pay for these expenses are provided. Even without these additional numbers, this is a massive debt-fueled stimulus, multiple times the cost of the Bush tax cuts.  Even with Trump’s plans to pinch pennies to make up the costs, this will add huge amounts to the national debt and is oddly timed give increasingly robust economic performance as well as the spreading and accelerating recovery. 

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