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The Voters Want Trump's Economic Plan

By       Message Seymour Patterson       (Page 1 of 2 pages)     Permalink    (# of views)   4 comments

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Trump as a presidential candidate had expressed his views on how to grow the US economy. Obviously, US economy had been growing, albeit, anemically. However, as president he will have the economic wind at his back--last quarter economic growth was a robust 3.6 percent. So one has to assume that by growth they mean faster rate of growth than the country is currently experiencing: 1.2 growth rate of GDP (it averaged about 2.5 percent in 2015), with unemployment below five percent. What they had in mind was an accelerated rate of growth. Part of Donald Trump's plan includes reducing tax brackets from the current seven to three with rates of 12, 25, and 33 percent. He expects a four- percent GDP growth, which is not beyond the ability of the US economy to achieve. Sen. Hillary Clinton wants a faster rate of growth as well. But how to get there involved diametrically opposite strategies from the two candidates. Trump's conversation on growth surrounds a massive tax of $2.5 trillion that some studies suggest will be a huge tax breaks to the very rich and will cause the debt to soar. On the other hand, Sen. Clinton proposed to achieve her economic growth by raising taxes on the rich income earnings and eliminating corporate loopholes. She also planned to cut taxes on the middle class and increase the minimum wage. One strategy is backward looking and the other is forward looking. Clinton lost!

Donald Trump railed during the presidential debate that approximately $5 trillion was spent in the Middle East that could have been spent on rebuilding US infrastructure. His transcribed (from The Washington Post) statement from the debate is:

"They're going to Mexico. They're going to many other countries. You look at what China is doing to our country in terms of making our product. They're devaluing their currency, and there's nobody in our government to fight them. And we have a very good fight. And we have a winning fight. Because they're using our country as a piggy bank to rebuild China, and many other countries are doing the same thing."

"So we're losing our good jobs, so many of them. When you look at what's happening in Mexico, a friend of mine who builds plants said it's the eighth wonder of the world. They're building some of the biggest plants anywhere in the world, some of the most sophisticated, some of the best plants. With the United States, as he said, not so much."

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"So Ford is leaving. You see that, their small car division leaving. Thousands of jobs leaving Michigan, leaving Ohio. They're all leaving. In addition, we can't allow it to happen anymore. As far as child care is concerned and so many other things, I think Hillary and I agree on that. We probably disagree a little bit as to numbers and amounts and what we're going to do, but perhaps we'll be talking about that later."

"But we have to stop our jobs from being stolen from us. We have to stop our companies from leaving the United States and, with it, firing all of their people. All you have to do is take a look at Carrier air conditioning in Indianapolis. They left, i.e. they were fired 1,400 people. They're going to Mexico. So many hundreds and hundreds of companies are doing this."

"We cannot let it happen. Under my plan, I'll be reducing taxes tremendously, from 35 percent to 15 percent for companies, small and big businesses. That's going to be a job creator like we haven't seen since Ronald Reagan. It's going to be a beautiful thing to watch."

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"Companies will come. They will build. They will expand. New companies will start. And I look very, very much forward to doing it. We have to renegotiate our trade deals, and we have to stop these countries from stealing our companies and our jobs."

Mr. Trump intervened--Vice president-elect Pence did the heavy lifting--and prevent some loss of jobs with a promised tax break of seven million dollar. (See New York Times)

Mr. Trump is correct. But the problem is that $5 trillion in sunk; its opportunity cost is zero. It cannot be used to do any infrastructure building in the US. Trump's strategy relies on the rich to spend money that he funnels up to them. They could spend it on private investment. He wants to give incentives to companies come back to the US and stop what he seems to believe is a hemorrhaging out of US companies to places like Mexico and China. It is hard to find robust evidence of a positive correlation between trickle down economies policies and sustained economic growth.

Hillary Clinton's comments on the economy (also from The Washington Post) are:

"I want us to invest in your future. That means jobs in infrastructure, in advanced manufacturing, innovation and technology, clean, renewable energy, and small business, because most of the new jobs will come from small business. We also have to make the economy fairer. That starts with raising the national minimum wage and also guarantee, finally, equal pay for women's work."

"I also want to see more companies do profit-sharing. If you help create the profits, you should be able to share in them, not just the executives at the top."

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"And I want us to do more to support people who are struggling to balance family and work. I've heard from so many of you about the difficult choices you face and the stresses that you're under. So let's have paid family leave, earned sick days. Let's be sure we have affordable child care and debt-free college."

"How are we going to do it? We're going to do it by having the wealthy pay their fair share and close the corporate loopholes." Voters were not impressed. She lost!

Each candidate planned to use taxes as the vehicle to achieve faster economic growth: one through conceptually a trickle-down paradigm and the other by raising taxes on the wealthy to pay for it. Clinton wanted to a trickle up approach by growing the middle class. And both candidates were embarking on a sort of Keynesian economics where the consumer is the economic driver--through more disposable from tax cuts, increases in the minimum wage that would give those workers more purchasing power. We'll never know if her plan would have worked. We'll have to wait and see if Mr. Trump's will since he will control the levers of the government during the next four years.

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Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)
 

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