Economic plans set out by politicians ahead of an election
are probably not worth much more than a cursory analysis, but that does not
stop people trying. Ahead of the US presidential election, a lot of ink has
been spilled trying to figure out the respective merits of the two candidates'
plans. As usual, the candidates talk a lot about taxes and how many
jobs they will create. But whilst this may be all well and good in a dictatorship where
the election winner has carte blanche to act as they please, it certainly does
not wash in western democracies where the head of government is beholden to
parliament (or Congress in the US case).
Donald Trump has called for lower taxes and a simplification of the tax code, reducing the number of tax brackets from seven to four, and for the top rate of tax to fall from 39.6% to 33%. In his words, "The rich will pay their fair share, but no one will pay so much that it undermines our ability to compete." Analysis by the Tax Foundation of the Republicans’ tax plan, released in June and which is similar to Trump’s, would disproportionately benefit the rich by raising the post-tax income of the top 1% of earners by 5.3%. But the Republican nominee goes much further, by proposing to completely eliminate estate taxes which would clearly benefit those rich enough to be able to pass on more than $5.45 million of assets to an individual (or $10.9 million to a married couple). This does not sound like a policy aimed at the blue collar workers amongst whom Trump is so popular.
Hillary Clinton, meanwhile, proposes to maintain the existing seven brackets but is also in favour of an additional surcharge on those earning more than $5 million per year which would be used to fund programmes such as free education for the less well off. Both candidates favour limiting tax deductions, with Clinton limiting them to a total of 28%. Analysis of their respective tax plans by the Tax Policy Center suggests that the Clinton plan would raise revenues by $1.2 trillion over the next ten years whilst Trump would cut them by $11.2 trillion. On the spending side, the Committee for a Responsible Federal Budget estimates that Clinton's spending increases would broadly match the higher tax take but Trump makes no effort to close the gap, with the result that his plans will result in much higher deficits. His plans thus sound more suited to Europe, which is crying out for stimulus, rather than the US which no longer is.
Where the Trump plans really start to fall apart is in the area of trade, where there are calls for the renegotiation of trade deals to favour the US and to walk away from those deals which are not viewed as favourable. Meanwhile, Trump has also advocated a 35% tariff on goods imported from Mexico and a 45% tariff on Chinese imports. To put it bluntly, a proportion of the income tax savings which US consumers would derive under President Trump would be clawed back in the form of higher goods prices resulting from higher tariffs. Not that Clinton's trade views are that consistent either. In a bid to tap into the Zeitgeist on trade issues, Clinton now suggests that the Trans-Pacific Partnership is not necessarily the best deal for America, even though she was involved in the negotiations.
John Cochrane argues in a blog post that the Clinton plan is not really a plan at all and that it represents little more than a wish list of ideas. Allowing for the fact that he is not particularly well disposed towards Clintonite policies in the first place, he has hit the nail on the head when it comes to describing candidates' plans (and not just in the US). They can only ever be a wish list. For example, whilst both Trump and Clinton suggest that they will boost the US manufacturing sector, the forces determining its fate lie well outside the control of any US president. For better or worse, we live in a globalised economy and we have to accept that for all the material benefits this has brought, there are costs in terms of a redistribution of jobs. Attempts to reverse the process will also impose major costs – particularly in the case of Trump’s plans.
Often, some of the things which candidates promise on the stump turn out to be things they bitterly regret. Take for instance David Cameron's 2010 promise to reduce annual UK immigration to "the tens of thousands" from levels around 250,000 at the time (it has since risen by a third). It made him a hostage to fortune which he could never deliver upon, and was compounded by the ludicrous decision to hold a simple in-out referendum on EU membership. And we all know where that led.
Donald Trump has called for lower taxes and a simplification of the tax code, reducing the number of tax brackets from seven to four, and for the top rate of tax to fall from 39.6% to 33%. In his words, "The rich will pay their fair share, but no one will pay so much that it undermines our ability to compete." Analysis by the Tax Foundation of the Republicans’ tax plan, released in June and which is similar to Trump’s, would disproportionately benefit the rich by raising the post-tax income of the top 1% of earners by 5.3%. But the Republican nominee goes much further, by proposing to completely eliminate estate taxes which would clearly benefit those rich enough to be able to pass on more than $5.45 million of assets to an individual (or $10.9 million to a married couple). This does not sound like a policy aimed at the blue collar workers amongst whom Trump is so popular.
Hillary Clinton, meanwhile, proposes to maintain the existing seven brackets but is also in favour of an additional surcharge on those earning more than $5 million per year which would be used to fund programmes such as free education for the less well off. Both candidates favour limiting tax deductions, with Clinton limiting them to a total of 28%. Analysis of their respective tax plans by the Tax Policy Center suggests that the Clinton plan would raise revenues by $1.2 trillion over the next ten years whilst Trump would cut them by $11.2 trillion. On the spending side, the Committee for a Responsible Federal Budget estimates that Clinton's spending increases would broadly match the higher tax take but Trump makes no effort to close the gap, with the result that his plans will result in much higher deficits. His plans thus sound more suited to Europe, which is crying out for stimulus, rather than the US which no longer is.
Where the Trump plans really start to fall apart is in the area of trade, where there are calls for the renegotiation of trade deals to favour the US and to walk away from those deals which are not viewed as favourable. Meanwhile, Trump has also advocated a 35% tariff on goods imported from Mexico and a 45% tariff on Chinese imports. To put it bluntly, a proportion of the income tax savings which US consumers would derive under President Trump would be clawed back in the form of higher goods prices resulting from higher tariffs. Not that Clinton's trade views are that consistent either. In a bid to tap into the Zeitgeist on trade issues, Clinton now suggests that the Trans-Pacific Partnership is not necessarily the best deal for America, even though she was involved in the negotiations.
John Cochrane argues in a blog post that the Clinton plan is not really a plan at all and that it represents little more than a wish list of ideas. Allowing for the fact that he is not particularly well disposed towards Clintonite policies in the first place, he has hit the nail on the head when it comes to describing candidates' plans (and not just in the US). They can only ever be a wish list. For example, whilst both Trump and Clinton suggest that they will boost the US manufacturing sector, the forces determining its fate lie well outside the control of any US president. For better or worse, we live in a globalised economy and we have to accept that for all the material benefits this has brought, there are costs in terms of a redistribution of jobs. Attempts to reverse the process will also impose major costs – particularly in the case of Trump’s plans.
Often, some of the things which candidates promise on the stump turn out to be things they bitterly regret. Take for instance David Cameron's 2010 promise to reduce annual UK immigration to "the tens of thousands" from levels around 250,000 at the time (it has since risen by a third). It made him a hostage to fortune which he could never deliver upon, and was compounded by the ludicrous decision to hold a simple in-out referendum on EU membership. And we all know where that led.
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