Finally we get some substantive proposals from the GOP candidate. Now we know he’s full of it.
FROM POLITICO | AUGUST 9, 2016
It is a relief that Donald Trump has finally turned to policy. Because now we can see, finally, that his policy ideas are as frothy, bombastic and detached from the world as the rest of his rhetoric. What the GOP candidate outlined in his big economic speech in Detroit on Monday relies entirely on an outdated theory (trickle-down economics), a debunked concept (that free trade is bad) and out-and-out legerdemain that attempts to dress up tax cuts for the rich as a boon to the middle class. It was an exercise in magical thinking that exposed almost all Trump’s promises on the stump over the past year as baseless. And it took place in a city of Detroit that exists only in Trump’s imagination.
The keynotes are the reduction of the corporate tax rate from its current level of 35 percent to 15 percent, plus a simplification of the various individual tax brackets into three buckets of 12, 25 and 33 percent. The last figure is important, in part because it represents a recent shift in Trump’s away from an even lower rate for top earners. In another nod to widespread discontent with income inequality, Trump also proposed ending the “carried interest” loophole that has made it possible for some of the hedge fund and private equity community to pay much lower taxes than they would if profits were taxed as ordinary income.
These tax proposals are straightforward. They are also fantastical. Yes, the United States taxes corporations more than most developed countries, and yes, corporations respond by domiciling trillions of dollars abroad and also making aggressive use of many loopholes in the tax code so that few companies end up paying that 35 percent rate. Finding a way to generate more revenue from U.S. corporations so that they contribute more meaningfully to the commons is imperative. Simply lowering the rate, however, will not achieve that. President Obama has also floated the idea of lowering the corporate tax rate, in conjunction with more spending and tax relief for those at the lower end of the income scale. Here, however, Trump’s plan offers ample handouts, but mostly to those who need them less.
An end to the estate tax (which he calls the “death tax”) affects only those with estates in excess of $5 million, and that holds true only from about 1 in 500 estates—which is another way of saying that only the very wealthy pay it. The promise to make childcare deductible is couched as family friendly, but it is only friendly to families who can afford thousands of dollars in childcare, which eliminates the tens of millions of families who need government subsidies. And while Trump promises to simplify the tax code so that the wealthy and well-off cannot game the tax system to pay less, the net result of these new brackets is still a substantial tax cut for the wealthy and for the higher end of the middle class.
As the nonpartisan Committee for a Responsible Budget has pointed out, Trump’s revised plan would add only $2.5 trillion to the deficit rather than the $11 trillion or so when the highest tax rate was capped at 25 percent. That in itself should not be damning. Candidates frequently unveil economic plans that are long on benefits to business and citizens and short on trade-offs and costs. What is damning, however, is that Trump then promises that his plan will so invigorate the domestic American economy that those trillions will evaporate, poof. Aren’t 30 years of failure in supply-side economics enough?
Then Trump proceeded to describe the city around him in a way as disconnected to reality as the real Detroit is to Emerald City. He sought to make Detroit Exhibit A in his brief against the Obama-Clinton years. “The city of Detroit is the living, breathing example of my opponent's failed economic agenda. Every policy that has failed this city and so many others is a policy supported by Hillary Clinton. She supports the high taxes and radical regulation that forced jobs out of your community and the crime policies that have made you far, far less safe. And the immigration policies that have strained local budgets and the trade deals like NAFTA, signed by her husband, that have shipped your jobs to Mexico and other countries and she supports the education policies that deny your students choice, freedom and opportunity.”
Detroit has suffered mightily in the past decades. To lay the blame for that on trade and Obama, however, is to do more than rewrite the past. It is yet another exercise in magical thinking. When Obama assumed office, the linchpin of Detroit’s economy—the Big Three auto manufacturers—were on the precipice of collapse. Ford managed to navigate its way through, but Chrysler and General Motors survived only because of a massive $80 billion bailout. The plan had been set in motion by George W. Bush and then expanded and finalized by Obama. The result was a restructuring of the companies, and controversial forced losses to bondholders and to many workers. Nonetheless, the companies survived, which not only kept Detroit from complete collapse but also bolstered manufacturing jobs throughout the Midwest steel-and-auto ecosystem to the tune of several hundred thousand jobs.
And many of the jobs lost never to be recovered were lost not to bad trade deals with China (which incidentally has not provided competition to the U.S auto industry the way Japan or South Korea have) but to innovations in robotics and manufacturing that necessitate far fewer workers. The jobs that remain are higher-skilled, often requiring advanced skills in engineering and software. Trump speaks as if a toxic brew of NAFTA and China, concocted by Obama and Clinton, suddenly felled American manufacturing and led to the loss of millions upon millions of jobs, and that he has the formula to reverse that. If that sounds too good to be true, it is.
Trump has taken a real issue—the radical and disruptive shift in the American economy over the past decades and the resulting displacement of millions of workers—and turned it in simple campaign pablum. His solutions are not feasible: Even if the president did have the unilateral power to pull out of NAFTA (questionable), the president does not have the power to change the laws governing the tariffs and taxes that have been passed since NAFTA. And even if magically all was suddenly rescinded, the costs of thousands of vital goods would increase dramatically with no corresponding rise in domestic incomes to offset those higher costs. No one can argue against the contention that trade deals ought to serve American middle-class needs. But what Trump offers isn’t a solution to that challenge; it’s a platform of wishful thinking disguised as policy.
No candidate should be held accountable for every penny of every proposal. These campaign policy statements should always be assessed as very rough and incomplete drafts. A candidate also can credibly argue for higher deficits in the short term as a means to long-term growth. The fact that Trump’s plans might increase budget deficits or not fully add up should not disqualify them as serious proposals.
But what does disqualify them is that the facts contradict Trump’s false story that Obama and regulation and China and Clinton destroyed Detroit and the American Dream. The first years of the 21st century that preceded Obama weren’t some halcyon time or a second coming of a 1950s that itself was a myth. They were a time of housing bubbles and war and an explosion of consumer debt that was the only thing fueling consumer spending in many regions and for many families. They were also a time of great innovation in technology, of strides in energy efficiency and independence, all of which also continued under Obama even as the Great Recession cast a deep and lasting shadow. The years before Obama's inauguration saw China become a global economic power because of a unique partnership with American companies, many of which were saved by accessing the burgeoning market of Chinese consumers. You wouldn’t know any of that listening to Trump, and because so much of reality is left on the sidelines of his economic agenda, it is impossible to envision how it could coalesce into a plan with any chance of achieving what it purports: keeping American great (which in this case presumably means keeping American affluent).
There is one caveat: if we had an extra $3 trillion or $4 trillion, maybe in the form of pure deficit and stimulus spending, Trump could propose steep tax cuts and sharp spending increases. That would explode government outlays, but he could argue that we need vastly more spending and stimulus, much more than Obama proposed and Congress passed in 2009. Deficit hawks would scream; traditional Republicans would recognize how very not Republican Trump is; and Democrats would be left playing spending catch-up. It would be pure Keynes, who Trump has likely not followed deeply, and quite appealing to many liberals. It would also require attacking Obama and Clinton not for failed policies, but for not going far enough. That would make the race even more interesting than it already is.
Instead, we are left with a grab bag of policies that will benefit mostly the wealthy, leave Detroit and myriad other regions to rise or fall based on the local entrepreneurs and citizens who are currently trying to save them, and a focus on trade that plays well in polls but is almost useless as policy. We are left as well with a promise that we can eliminate taxes and vastly increase spending by waving a wand of deregulation and kicking the bastards out—a promise that has been made by select Republicans since Reagan and has done nothing to tend to the needs of the very people Trump now says he cares so deeply about.
Yes, it is a relief indeed that Trump has finally turned to serious policy. Now we know how little substance even his substance has.