Why Trump-onomics may win over the US
LAST night citizens of Iowa trudged through the snow and mid-Western farmland mud to cast their first votes to kick-off a ten-month marathon that will choose the next president of the United States.
By 11am this morning we should find out whether the rise and rise of property magnate and American Apprentice star Donald Trump to the top of the Republican opinion polls in Iowa and New Hampshire will be matched by actual votes cast.
Political experts have argued that Trump should have eliminated himself by his buffoonery, his misogynist comments about women, and his views on Mexicans and Islamic immi- grants. Yet, despite the torrent of criticism, his campaign has prospered. Indeed, David Axelrod, the Democratic strategist who helped propel Barack Obama to the White House eight years ago, says: ‘What seemed impossible is now more than plausible: Donald J Trump could pull off a hostile takeover of the Grand Old Party (the Republicans).’
Much of the focus on Trump has been on his crass attacks on a variety of minorities, his ridiculous hair confections, his bawdy loud style and his embrace by one of America’s least qualified vicepresidential candidates Sarah Palin.
As a consequence, the substance of what he has to say largely has been ignored. Yet despite the disdain, his domestic policies lean heavily on those adopted by one of his most illustrious predecessors as a Republican candidate Ronald Reagan, who is now venerated as one of the greatest presidents of the 20th Century.
In parti c ul a r Trump has embraced a tax cutting and tax simplification agenda with an appeal well beyond wealthy Republican voters to the so-called ‘blue collar’ middle- classes who helped to elect both Reagan and George W Bush twice to the White House.
Paradoxically, for a tycoon who built his property, hotel and casino empire on debt, provided by his New York neighbours, the Wall Street banks, Trump has also positioned himself as the enemy of big finance.
He directly attacks the big money centre banks and hedge f unds f or their unscrupulous behaviour. He has also launched fusillades at Goldman Sachs for shovelling millions of dollars into the rival campaigns of Republican Senator Ted Cruz and Democrat and former Secretary of State Hillary Clinton.
As a rich man, Forbes magazine has estimated his net wealth at £3.1bn, he is able to fund his own campaign and rely on the cash coming in from tens of thousands of small donors.
All politicians are in favour of creating jobs. Trump has gone one step further by invoking the name of the Almighty, saying he would ‘be the greatest jobs president that God has ever created.’
It is an untestable boast, but even his critics are forced to note that his business empire has cre- ated, and is still creating, thousands of jobs.
He also has shed jobs, as has been the case when things went wrong during four corporate bankruptcies including at his bling Trump Taj Mahal Resort Casino at Atlantic City in 1990. In the entrepreneurial American culture bankruptcies are often viewed as a rite of passage for the self-made business person.
Trump’s economics are an eclectic mix. Far from being an economic liberal, believing in open global markets, he is a classic economic nationalist. Among his key proposals is to erect high tariff barriers against cheap Chinese imports, such as steel, which are wrecking domestic production.
The Republican candidate is no fan of neighbouring Mexico either and the North American Free Trade Area (Nafta) that gives the US’s southern neighbour open access to American markets.
Such mercantilist ideas are particularly attractive to workers in traditional manufacturing industries. In the past they have been more associated with the Left of the Democratic party and the trades unions than free trade Republicans.
On the vital issue of tax reform Trump is solidly in the tradition of Reaganomics with an emphasis on lower and simpler taxes. His tax policies have been endorsed by none other than southern California economist Arthur Laffer, author of the Laffer curve.
This was once famously drawn on a table napkin for Reagan and his team showing lower taxes produce a higher yield to the US Treasury because they create the incentives to work and keep companies, and the taxes they pay, within the United States.
Under the Trump tax plan any American earning l ess than $25,000 a year, or married and earning $50,000 between the partners, will pay no income tax at all.
This would take 75m US households out of tax – some 50pc of the population. The current seven tax bands will be reduced to four brackets 0 pc, 1 0 pc, 20pc and 25pc. Estate duties, t he so called ‘death t ax’ will be eliminated.
How will all this be paid for? For personal taxpayers the uplift will come from the removal of al most al l deductions and loopholes.
Tax reliefs in the US have proliferated over the years, with mortgage interest (MIRAS as it used to be in the UK) among the biggest.
In effect he is proposing a ‘flat tax’ system similar to some of the Eastern European democracies from Poland to Estonia.
Trump’s proposals for business taxation are equally radical and aim to eliminate a system, similar to that currently being debated in Britain, where small businesses or ‘mom and pop’ stores are heavily taxed while many of the Silicon Valley giants escape.
He proposes to do this by reducing the corporation tax rate to 15pc making it competitive with most of the advanced world.
He will require corporations to repatriate the $2.5trillion of funds estimated to have been stashed in Bermuda and other tax havens. And he wants to outlaw tax inversions of the kind which saw US group Johnson Controls merge with Irish-based Tyco International last month in a $20bn deal designed to escape higher US corporation tax.
The interesting aspect of all this is how much resonance it has, not just in the US but in countries such as Britain where American firms such as Starbucks, Amazon and Google are seen as serial tax avoiders. Trump has made waves around the world with what have been perceived as racist and antediluvian statements to the point that the House of Commons even debated banning him from Britain. But behind the testosterone-fuelled bluster, which captures so much attention, Trump has managed to marshal a collection of radical economic ideas with strong popular appeal.
We will be hearing a lot more about them in the coming months if his campaign for the White House does pick up momentum in the early primaries.
‘What seemed impossible is now more than plausible’ ‘The greatest jobs president that God has ever created’