Trump Economic Policy Disected

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Analysis by Reporting San Diego

August 9, 2016 (San Diego) Well, now that we all have time to digest the speech, time to look at it. Most of the policies proposed by Donald J Trump are standard Republican Party fare. He is speaking of a simplified tax code, which Speaker of the House Paul Ryan has also proposed. Both men also agree that it is time to cut taxes.

For example Trump is proposing to do this:

I am proposing an across-the-board income tax reduction, especially for middle-income Americans. This will lead to millions of new good-paying jobs.

The rich will pay their fair share, but no one will pay so much that it destroys jobs, or undermines our ability to compete.

The idea behind this is that lower taxes means more money in pocket books, which means more spending and this will stimulate the economy. This in turn will generate higher sales and transient occupancy taxes due to stays at hotels, These sales taxes will replace the income taxes and governments will not lose in the end.

This also relies on another chestnut of the American party, and that is that we have the highest tax rate in the world. This sis not the case  Pew, among others, has looked into this  and found that:

We wondered how Americans’ tax bills compare with those of people in other countries. While cross-national comparisons of tax burdens are complicated and tricky, most research has concluded that, at least among developed nations, the U.S. is on the low end of the range.

There was another favorite in the arsenal of conservatives, and this is the so called death tax, which is an inheritance tax. Trump promised to repeal it, like many others before him. Never mind that it will directly benefit his children. Most Americans will never pay this tax, since most inheritances are well bellow the federal state tax of $5,430,000 as of 2014. Some states also have it, and it is that high.

Trump also stated this chestnut about business taxes, which is boiler plate for the republican party and the conservative movement:

The United States also has the highest business tax rate among the major industrialized nations of the world, at 35 percent. It’s almost 40 percent when you add in taxes at the state level.

In this respect this is a harder one to peg. After all the statuary rate, what we are all supposed to pay, is among the highest, But Polifact found that in real terms that is not the case; They write:

Another 2011 study by the Congressional Research Service put the U.S. effective rate at 27.1 percent, slightly lower than the OECD average of 27.7 percent.

This matters, because this is at times a hall of mirrors, and with corporate inversions, which is a practice where corporations can headquarter in another country, wth lower tax rates, this means that some companies pay very little taxes. He promised to take care of this and forbid the practice, but the Obama administration is ahead of him. Pfizer’s merger with Allergan, an Irish company was stopped becuase of the administration. US News and World Report writes on this as well:

Like most multinationals, Pfizer and its corporate lobbyists continually complain that U.S. taxes are too high, claims that are parroted by its elected allies on Capitol Hill. The truth is that big, profitable U.S. corporations actually pay an average effective tax rate of only 19 percent, which is on par with or lower than corporate tax rates in most other developed countries. The current inversion craze has helped exposed how multinational corporations relentlessly seek to achieve a U.S. tax rate of close to zero by shifting their profits on paper to tax haven countries like Ireland, the Cayman Islands or Bermuda.

Incidentally, while presidential candidates do not have to release their taxes, it has become customary. We suspect Trump has not released his for the same reason that Mitt Romney did not like to release his in 2012. Those revealed that Romney was paying 15 percent in taxes, while the rest of us are paying double of that. There has to be a good reason, beyond an audit, not to release those documents. Realize Richard Nixon did release his, even in the midst of an audit.

Trump also took on regulatory reform, which is code for getting rid of regulations, as many as possible. The objective is to get rid of environmental protections, worker protections and consumer protections. These are policy goals of the Republican party that go back decades.

So where does Trump differ from his party? Trade.

The party, together with the Democrats, have been passing free trade agreement after free trade agreement for decades. This is a policy goal of the business faction of the party. The North American Free Trade Agreement was negotiated under the George Bush Administration, and signed into law by Bill Clinton, Bush’s son, W pursued other Free Trade Agreements, such as the Colombia and Central America Free Trade Agreement, and the Obama administration has been at the forefront of both the Korea Free Trade and now both the Transpacific Free Trade Agreement and the Trans-Atlantic Trade and Investment Partnership.

In Trump’s mind these agreements are bad for the United States and have put Globalization ahead of the United States. This is a very populist, America First stance, that while not strictly isolationist, it puts the breaks on the current versions of free trade. What he wants is not precisely clear, but what he does not want is. He is rejecting the last 45 years of foreign policy, starting with the Word Trade Organization, and he blames that for the decline of the industrial heart of the country. At a policy level this is a historic rejection of the global economic order.

 

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