Donald Trump delivered another economic speech last week. Like his previous speech in Detroit, his delivery was pretty effective and so was his rhetoric. I thought he did a better job at being less gloomy about the state of the country; he even sounded excited at times about its future. That said, Trump’s overall plan is a confusing mishmash.
- Trump understands that economic growth is incredibly important — he has made it the cornerstone of his message. Contrast this with Hillary Clinton’s vision — where there is no plan for boosting economic growth apart from the usual failed policies of boosting government spending, turning government into a venture-capitalist firm, and raising taxes on the rich. The Democrats have checked out on the growth path and it is disconcerting. As Larry Kudlow and Brian Domitrovic write in their great new book, JFK and the Reagan Revolution: A Secret History of American Prosperity, that wasn’t always the case.
- Trump’s previous plan was very expensive and he apparently took this criticism seriously: He backed off from his plan to dramatically expand the standard tax deduction. Compared to his original tax proposal, he would also raise the top marginal personal-income tax rate from 25 to 33 percent, still an improvement over the current rate. The cost of the plan is $4 trillion but — as I have often said — I don’t mind the lack of revenue neutrality if a tax proposal is accompanied with large spending cuts.
- Trump has retained the growth part of this plan: The reform of the business tax. We can’t overstate how important and how growth-enhancing a reform of the corporate-income tax is. This is very positive.
- Trump understands how much growth could be generated by getting rid of bad regulations and lightening our regulatory burden. Regulation, at the federal, state, and local level is pervasive and imposes significant costs on businesses. The misery is spread around as companies shift these costs to customers in the form of higher prices, to employees in the form of lower wages, and to investors in the form of lower returns. Cumulatively, regulations cause a serious drag on economic growth and trigger job losses. A 2013 article in the Journal of Economic Growth by John Dawson and John Seater finds that GDP had been reduced by a surprising $39 trillion over the period 1949 through 2005 due to regulation. That’s $129,300 per person by 2005.
- Trump’s energy plan seems good.
On the negative side:
- Trump’s protectionism is unbearable.
- Like Hillary, Trump thinks it is the job of the government to subsidize child care. He would also jack up the EITC, exacerbating the program’s problems. Trump is obviously enamored with European-style entitlement for paid maternity leave and other family-friendly programs. He should read this article about how these types of government actions have backfired in Europe — making women less attractive to employers. For more on his child-care plan I recommend reading this, this, and this.
- Trump’s tax plan — even if reasonably attractive on paper — is completely unrealistic because there is no accompanying spending restraint. He refuses to reform Social Security, Medicare, and Medicaid, which are the drivers of our future debt. That’s really disappointing.
- Trump is pandering to conservatives by refusing to touch defense spending. It is silly because the same waste, fraud, and abuse that plague other programs exist in defense spending. As we have heard in other speeches, he would get rid of sequester cuts and he called for more funding for the Department of Veterans Affairs to augment job training, research on traumatic stress, brain injury, and suicide prevention, and to hire more service providers at VA hospitals. What we want is an effective defense. A large defense budget is not a guaranty that you are achieving this goal; every additional defense dollar isn’t necessarily translating into more national security.
To conclude, there is no question that Trump’s tax plan has some excellent features, but ultimately he continues to sound like a big-government Republican with a serious spending problem. (And yes, I know that Hillary Clinton’s policies are horrible as well.)