Skep­ti­cism greets Trump plan

Econ­o­mists: New tax, growth ideas still don’t add up

Baltimore Sun - - ELECTION 2016 - By Don Lee and Noah Bierman

WASH­ING­TON — Don­ald Trump scaled back his grandiose plan for tax cuts while propos­ing more ben­e­fits for lower- in­come house­holds in a speech Thurs­day, but ex­perts say the num­bers in his newly re­vised eco­nomic growth blue­print still don’t add up.

In his most de­tailed eco­nomic plan to date, the Repub­li­can pres­i­den­tial nom­i­nee es­sen­tially halved the amount of tax cuts he will seek to $4.4 tril­lion over 10 years, in part by cap­ping de­duc­tions. At the same time, Trump said his eco­nomic strategy — which in­cludes over­haul­ing gov­ern­ment reg­u­la­tions, trade and en­ergy poli­cies — would boost U.S. eco­nomic growth to 3.5 per­cent a year on av­er­age, up from 2 per­cent in re­cent years. He promised that his plan would cre­ate as many as 25 mil­lion jobs over the next decade.

“This is the most progrowth, pro-jobs, pro-fam­ily plan put forth per­haps in the his­tory of our coun­try,” he said in a speech at the Eco­nomic Club of NewYork.

While re­spond­ing to crit­ics that his pre­vi­ous tax and growth plans were vague and un­re­al­is­tic, Trump none­the­less raised ques­tions about how he could achieve such rapid eco­nomic growth and pay for what are still very large tax cuts to in­di­vid­u­als and busi­nesses.

“It’s still very pie-in-thesky,” said Marc Gold­wein, se­nior vice pres­i­dent for the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get, a non­par­ti­san group that ad­vo­cates keep­ing gov­ern­ment bud­gets un­der con­trol.

Trump’s plan would re­duce the tax brack­ets for in­di­vid­ual in­come tax to GOP hope­ful Don­ald Trump said in New York on Thurs­day that his eco­nomic plan is “pro-growth, pro-jobs, pro-fam­ily.” three from the cur­rent seven, with the high­est rate drop­ping to 33 per­cent from 39.6 per­cent. De­duc­tions would be lim­ited at $100,000 for sin­gle fil­ers and $200,000 for mar­ried fil­ers, which would re­strain high-in­come fil­ers look­ing to deduct more for hous­ing and char­i­ta­ble do­na­tions.

In an at­tempt to ap­peal to lower- and mid­dle-in­come Amer­i­cans, Trump called for an ex­panded earned in­come tax credit and tax sav­ings for child care.

In ad­di­tion, it ap­peared that sole pro­pri­etor­ships, part­ners and other so-called pass-through en­ti­ties, which tend to be used by high­er­in­come fil­ers, would not be able to take ad­van­tage of Trump’s plan low­er­ing the cor­po­rate tax rate to 15 per­cent from the cur­rent 35 per­cent, said Howard Gleck­man, a se­nior fel­low at the Tax Pol­icy Cen­ter. Trump’s speech and ad­di­tional de­tails re­leased by his cam­paign did not make it clear.

“This pro­posal is less skewed to­ward the high­in­come” earn­ers, Gleck­man said. Still, he said, the low­er­ing of tax rates, plus Trump’s pre­vi­ously an­nounced idea to re­peal the es­tate tax and al­ter­na­tive min­i­mum tax, would none­the­less still end up dis­pro­por­tion­ately ben­e­fit­ing higher-earn­ing in­di­vid­u­als.

Al­though Trump’s plan would cut taxes over­all by $4.4 tril­lion over 10 years, he said that the lost fed­eral rev­enue would amount to about $2.6 tril­lion un­der a so-called dy­namic growth model, which as­sumes that the tax cuts would stim­u­late growth and thus gen­er­ate ad­di­tional rev­enues. By its cal­cu­la­tions, Trump’s eco­nomic team would make up for about $1.8 tril­lion of the $2.6 tril­lion deficit largely by ne­go­ti­at­ing more fa­vor­able trade deals, re­form­ing en­ergy poli­cies and elim­i­nat­ing costly gov­ern­ment reg­u­la­tions.

The re­main­ing deficit would be shaved by re­duc­ing gov­ern­ment spend­ing, al­though Trump said there would be no re­duc­tion in de­fense and So­cial Se­cu­rity, Medi­care and Med­i­caid, which to­gether make up about three-quar­ters of the fed­eral bud­get.

Taken to­gether, said Peter Navarro, a Univer­sity of Cal­i­for­nia at Irvine pro­fes­sor and Trump eco­nomic ad­viser, “it’s re­ally not a stretch at all” to re­turn the na­tion’s an­nual eco­nomic growth to the his­tor­i­cal av­er­age of 3.5 per­cent from the end of World War II through 2000.

“It’s a fairly sim­ple walk,” he said Thurs­day from New York, where he joined Trump for his speech.

But other econ­o­mists, con­ser­va­tive and lib­eral, are much more cir­cum­spect.

“If he could go from 2 to 3, that would be amaz­ing; he’d be in the hall of fame,” said Dou­glas Holtz-Eakin, pres­i­dent of the right-lean­ing Amer­i­can Ac­tion Fo­rum.

The chal­lenge for Trump is that eco­nomic growth is es­sen­tially a func­tion of the num­ber of work­ers and the rate of pro­duc­tiv­ity growth, and both have lagged in the last decade. Greater busi­ness in­vest­ment and higher wages will help lift both mea­sures, but many other econ­o­mists be­lieve Trump’s tough trade promises — to rene­go­ti­ate the trade pact with Canada and Mex­ico and threats to im­pose big tar­iffs on China and other trad­ing part­ners — will hurt global trade and end up sub­tract­ing from U.S. eco­nomic out­put growth.

“It’s fair to say that he has a fairly pro-growth pol­icy to take growth north of 2 per­cent,” Holtz-Eakin said. “The trou­ble is, he’s over­count­ing what he could get. ... They’re se­ri­ously re­spond­ing to the cri­tique and now they’re claim­ing it adds up — I don’t think it does.”


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