Donald Trump on Economic Policy

Reviewed: April 19, 2016
By FinanceWeb

While Trump has made headlines for his goal of creating jobs, the actual consequences of his policy proposals seem unlikely to fulfill that goal. He has proposed large tax cuts without clearly saying how the government’s budget would be cut to afford these tax breaks. According to the nonpartisan Committee for a Responsible Federal Budget, his proposals would end up costing an additional $15 trillion in the next ten years. This would bring the debt-to-GDP ratio to 115 to 140 percent in 2026. If today’s policies were continued, the debt-to-GDP ratio would only total 86 percent.

Immigration Reform

Trump’s three main economic proposals are for tax cuts, trade reform and immigration reform. He has advocated for deporting the 11 million undocumented immigrants who currently reside in the United States. While this initially may appeal as a way to open up more jobs, it would actually have a detrimental effect on the economy. If 11 million workers were deported in a year, it would actually cause a depression. At the moment, the economy is near the full employment rate. The unemployment rate is at about 5 percent, and 215,000 jobs were added in March.

A 5 percent unemployment is considered healthy by economists. It is impossible to reach 0 unemployment because, in a healthy economy, people will leave their current job to gain a better position. For industrialized nations, economists want a 4 to 5 percent unemployment rate because it shows that there are plenty of jobs available, and employees feel safe enough in the economy to leave their jobs and find a better one. If 11 million undocumented immigrants were deported, it would hurt the economy because many of those jobs would remain unfilled. Additionally, the 11 million immigrants shop, eat and rent in the United States. Their portion of consumer spending would be removed, and businesses would no longer gain their dollars.

Trade Reform

For trade, Donald Trump has argued for imposing large tariffs on anything imported from other countries like China and Mexico. While it sounds good in a campaign speech, it does not work in practice. When a tariff is added to a good, it makes the good more expensive. The person who ultimately pays for this increase is the consumer in the United States. Unfortunately, larger tariffs would not actually lead to an increase in manufacturing in the United States. It would essentially be an additional tax for the American consumer to pay. Additionally, half of imports into the United States are raw materials. American companies use these materials to make new products and hire Americans. If a tariff is hired, the American manufacturer faces higher costs that would be passed on to the consumer later on.

Even worse, creating new tariffs could cause manufacturing in the United States to decline. In general, other nations create new tariffs in response to any tariff created by the United States. This makes American goods more expensive and less appealing for global consumers. As a result, the threat of tariffs would cause a drop in United States exports.

Trump has also declared China to be a currency manipulator, and he says they are stealing American jobs. Due to this, Trump wants to go after China for violating intellectual property laws and accuse them of being a currency manipulator. While China had an undervalued currency in 2000, most economists believe that the yuan is overvalued now. As for intellectual property crimes, the mechanisms and costs of charging China with intellectual property theft are not apparent. While the costs of intellectual property infringement range from $14 billion to $150 billion each year, economists do not know how much it would cost to get China to deal with the problem.

Tax Cuts

When it comes to taxes, Trump focuses on giving out large tax cuts. The standard deduction would increase by 400 percent, and top earners would see their tax rates fall from 40 percent to 25 percent. Meanwhile, Trump wants to drop corporate taxes from 35 percent to 15 percent. His goal is to get companies to stop outsourcing and pay on revenue from untaxed money held overseas. Over the next decade, the Brookings Institute estimates that his tax plan would cost $9.5 trillion. At the Center for Tax Justice, the estimate is a $12 trillion rise in costs over the next decade.

In reality, the majority of the tax cuts would go to the highest-earning taxpayers. The poorest 20 percent would save $128 every year, which would give them an extra 1 percent in after-tax earnings. Meanwhile, the top 1 percent of earners would pay $275,000 less in taxes, which would increase their after-tax earnings by 17.5 percent. Even at the right-leaning Tax Foundation, the projections for his policies show a $10 trillion hole in the United States economy over the next decade. Even with unexpected, fairy tale-like economic growth, he would be unable to make up the difference.

Sources:

http://www.usnews.com/news/the-report/articles/2016-03-11/donald-trumps-economic-policies-will-cost-americans
https://www.donaldjtrump.com/positions/us-china-trade-reform
http://money.cnn.com/2015/07/28/news/economy/donald-trump-polls-taxes-wages/
http://www.investopedia.com/articles/investing/091515/3-top-things-know-about-donald-trumps-economic-views.asp
http://www.ibtimes.com/donald-trump-economics-will-his-presidency-make-american-economy-great-again-2324505
http://www.politico.com/story/2016/01/trump-economy-217496
http://www.cnbc.com/2016/03/10/trump-trade-plans-could-cause-global-recession-experts.html