Donald Trump’s sums do not add up
YESTERDAY in Detroit Donald Trump gave a much-anticipated speech on the economy. It was billed as setting out Mr Trump’s economic agenda for America; its political function was to move media coverage on after a disastrous week for Mr Trump (see article). On policy, the speech did two almost contradictory things. First, it brought Mr Trump closer to the position of congressional Republicans on tax and regulatory policy. Second, it reiterated Mr Trump’s desire to tear up America’s trade agreements (a position most congressional Republicans hate). Yet Mr Trump left many gaping holes in his economic plan.
Take tax. Mr Trump confirmed in the speech that he was modifying his tax plan to bring it closer to that of Paul Ryan, the Republican chairman of the House. Little wonder: Mr Trump’s initial ideas were projected to cost an eye-watering $12 trillion over a decade (before accounting for their effects on the economy). Mr Trump is now adopting Mr Ryan’s proposed marginal tax rates of 12%, 25% and 33%, up from 10%, 20% and 25% respectively under his initial plan. He also promised to incorporate a sensible growth-boosting reform that Congressional Republicans have long sought: allowing businesses to deduct the cost of investment from their corporation tax in the year the investment is made, rather than over time as the assets they acquire depreciate.
Typically, politicians flesh out the details of such wonkery in accompanying policy documents. But Mr Trump has yet to release the plan in full. As a result, it is impossible to cost (a fact unlikely to have escaped Trump advisors, who must be especially keen to avoid negative headlines this week). One thing that made the first plan so expensive was a huge expansion in the standard deduction, the amount that can be earned before paying income tax, to $25,000 per filer, up from $6,300 today. It is unclear if this remains, though Mr Trump did promise substantial tax cuts for middle-earners. An aggressive cut to corporation tax, from 35% to 15%, did survive. The Committee for a Responsible Federal Budget, a fiscally-hawkish think-tank, reckons this alone will cost about $2.5 trillion over a decade, before accounting for the growth it might generate. But if the increase in the standard deduction stays too, Mr Trump’s revised plan will still blow a hole in the federal budget.
Mr Trump also vowed to follow Mr Ryan’s plan to boost growth by tearing up federal regulations—particularly those regulating carmakers and energy firms. He promised a moratorium on new rule-making by federal agencies. Yet regulations which most clearly hold back America’s economy, such as occupational licensing requirements, are typically written by states rather than the federal government. Mr Trump did not mention these. By contrast, many of the recent federal regulations congressional Republicans dislike, such as a rule requiring financial advisors to act in the best interests of their clients, are sensible. Others are required to make the Affordable Care Act’s insurance marketplace work. And energy regulations are only obviously bad if you are a climate-change sceptic.
The biggest unknown about Mr Trump’s economic policy is what he really wants from trade deals. The speech criticised NAFTA, the TPP and a 2012 bilateral deal with South Korea. Mr Trump then insisted that he is not an isolationist, promising to support “great” trade deals. But he never explains what these look like. Simply tearing up free-trade agreements would be costly indeed. It would not deliver the abundance of well-paying manufacturing jobs Mr Trump promises. Many such jobs have been lost to technology. America will never again export low-value manufactured goods, trade barriers or none. Rather than reverse two decades of economic change, a protectionist agenda would slow both economic growth and, by making imported goods more expensive, crimp middle incomes—the opposite of what Mr Trump promises. His plans are very far from adding up.
YESTERDAY in Detroit Donald Trump gave a much-anticipated speech on the economy. It was billed as setting out Mr Trump’s economic agenda for America; its political function was to move media coverage on after a disastrous week for Mr Trump (see article). On policy, the speech did two almost contradictory things. First, it brought Mr Trump closer to the position of congressional Republicans on tax and regulatory policy. Second, it reiterated Mr Trump’s desire to tear up America’s trade agreements (a position most congressional Republicans hate). Yet Mr Trump left many gaping holes in his economic plan.
Take tax. Mr Trump confirmed in the speech that he was modifying his tax plan to bring it closer to that of Paul Ryan, the Republican chairman of the House. Little wonder: Mr Trump’s initial ideas were projected to cost an eye-watering $12 trillion over a decade (before accounting for their effects on the economy). Mr Trump is now adopting Mr Ryan’s proposed marginal tax rates of 12%, 25% and 33%, up from 10%, 20% and 25% respectively under his initial plan. He also promised to incorporate a sensible growth-boosting reform that Congressional Republicans have long sought: allowing businesses to deduct the cost of investment from their corporation tax in the year the investment is made, rather than over time as the assets they acquire depreciate.
Typically, politicians flesh out the details of such wonkery in accompanying policy documents. But Mr Trump has yet to release the plan in full. As a result, it is impossible to cost (a fact unlikely to have escaped Trump advisors, who must be especially keen to avoid negative headlines this week). One thing that made the first plan so expensive was a huge expansion in the standard deduction, the amount that can be earned before paying income tax, to $25,000 per filer, up from $6,300 today. It is unclear if this remains, though Mr Trump did promise substantial tax cuts for middle-earners. An aggressive cut to corporation tax, from 35% to 15%, did survive. The Committee for a Responsible Federal Budget, a fiscally-hawkish think-tank, reckons this alone will cost about $2.5 trillion over a decade, before accounting for the growth it might generate. But if the increase in the standard deduction stays too, Mr Trump’s revised plan will still blow a hole in the federal budget.
Mr Trump also vowed to follow Mr Ryan’s plan to boost growth by tearing up federal regulations—particularly those regulating carmakers and energy firms. He promised a moratorium on new rule-making by federal agencies. Yet regulations which most clearly hold back America’s economy, such as occupational licensing requirements, are typically written by states rather than the federal government. Mr Trump did not mention these. By contrast, many of the recent federal regulations congressional Republicans dislike, such as a rule requiring financial advisors to act in the best interests of their clients, are sensible. Others are required to make the Affordable Care Act’s insurance marketplace work. And energy regulations are only obviously bad if you are a climate-change sceptic.
The biggest unknown about Mr Trump’s economic policy is what he really wants from trade deals. The speech criticised NAFTA, the TPP and a 2012 bilateral deal with South Korea. Mr Trump then insisted that he is not an isolationist, promising to support “great” trade deals. But he never explains what these look like. Simply tearing up free-trade agreements would be costly indeed. It would not deliver the abundance of well-paying manufacturing jobs Mr Trump promises. Many such jobs have been lost to technology. America will never again export low-value manufactured goods, trade barriers or none. Rather than reverse two decades of economic change, a protectionist agenda would slow both economic growth and, by making imported goods more expensive, crimp middle incomes—the opposite of what Mr Trump promises. His plans are very far from adding up.
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