Donald Trump on Thursday re-introduced his plan for economic growth into a presidential campaign that has so far been light on policy. And while the Republican nominee didn’t reveal too many additional details, we now have a better picture of the kinds of economic policy changes he would pursue if elected president.
But the reality is that while some of his ideas would certainly improve the economy and be a welcome change from the growth-stifling policies that the Obama administration has pursued for the last eight years, others are either wrongheaded or dangerous, and will likely leave many economic conservatives still skeptical of Trump’s candidacy.
Trump reiterated his support for energy and regulatory policies that will fuel economic growth. While many of his policy pronouncements remain vague — like his support for diverse sources of energy or his desire to put a pause on the issuance of new regulations — the general direction of his proposals are pro-growth and consistent with free-market economic principles.
Trump’s tax plan, meanwhile, also includes some positive, pro-growth reforms. He says he would pursue reductions in individual marginal tax rates, institute a new cap on deductions for higher-income taxpayers, and sharply cut the corporate tax rate. The deductions cap is particularly interesting because it takes a novel approach to the question of how to raise revenue to help pay for marginal rate reductions. Under the Trump plan, higher-income taxpayers will need to choose between different deductions, like those for charity, mortgage interest, and health care, but will be unable to fully take advantage of all of them. This is sure to be controversial, but rightfully places the onus on taxpayers to allocate a fixed amount to the preferences that suit them best.
More dubious is Trump’s claim that he simplifies the tax system — he isn’t proposing elimination of any of major deductions or credits, and in fact is adding a new child care deduction to the tax code.
Trump continues to advocate for anti-free trade policies that threaten to nullify the pro-growth elements of his tax, regulatory, and energy proposals. While he rightfully raises questions about some of the trade policies that countries like China have pursued over the last several years, his solution is to invite a trade war, while turning away from bilateral trade agreements like the recently signed U.S.-Korea agreement, as well as multilateral agreements like NAFTA and the Trans Pacific Partnership (TPP). Although the multilateral trade agreements, in particular, are not perfect, his preference for mercantilist policies would hurt economic growth and ultimately the American worker.
Trump has made the political calculation that outright opposition to free trade is a winner in this election cycle. His opponent appears to have made a similar calculation, and has recently become a critic of free trade deals like the TPP. But as the nominee of the party that is supposed to stand up for free trade and its benefits, Trump’s position on this issue is particularly problematic.
The worst element of Trump’s economic plan is something that is missing from it. Trump’s continued refusal to deal with the coming entitlement crisis, and his failure to present a credible fiscal plan, is inexcusable. Every Republican nominee in recent memory has had a plan to modernize and strengthen both Medicare and Social Security. Trump is the notable exception. On this issue, he has espoused the mindset of the progressive left, whose adherents believe Medicare and Social Security are doing just fine and need not be touched.
Spending on major health care programs (the biggest of which is Medicare) and Social Security are two of the three largest drivers of federal spending over the next ten years. (The third is interest on the national debt.) In the absence of reform, Social Security benefits will be cut across-the-board by 20 percent in less than 20 years. Medicare’s trust fund will be exhausted in a little over a decade, potentially jeopardizing access to physicians, hospitals, and medical treatments. Policy experts on both the right and the left have concluded that these problems must be addressed now.
The only fiscal restraint Trump envisions is the so-called “Penny Plan,” which independent analysts have determined could save about $600 billion over ten years. Unfortunately, the plan only calls for restraints on discretionary spending, which has already been capped by congressional Republicans. And it does nothing to deal with the big-ticket entitlement spending that is driving our long-term debt problem.
Many in the media have turned their attention to “whether the numbers add up.” But such attention is misplaced. It’s very difficult to make predictions about the impact of major policy changes before they happen — consider, for example, how far off the mark initial predictions were when it came to Obamacare’s impact on health insurance coverage. The bigger question is whether Trump has serious prescriptions to address the significant economic policy challenges our country faces. In some cases, he does. But in others, he has a lot of work left to do.