Trump’s Economic Siren Song

Siren Song The words “Trump” and “plan” should really never be used in the same sentence. Witness the speech to the Detroit Economic Club.  Here’s what the Reuters News Service gleaned from Trump’s speech:

“Republican presidential nominee Donald Trump on Monday proposed tax breaks for working families and for corporations as he outlined economic plans in an effort to regain momentum lost during a damaging spate of controversies.

Trump said his plan would include imposing a temporary moratorium on new federal regulations and a reduction to the tax burden on working parents with childcare costs.

He proposed cutting the number of federal income tax brackets from seven to three and reducing the top rate to 33 percent from 39.6 percent. He had previously said he would drop that rate to 25 percent, an idea many tax experts said would dramatically reduce government income and balloon deficits.”

First, notice in the second line of the article quoted above that Mr. Trump “outlined economic plans,” NOT offered any specifics —  those will come later, just as every other suggestion made by the Republican nominee will come later, if at all.  If ever.

The Rich Get Richer and 88.7% Get Nothing

Secondly, those “tax breaks for working families” aren’t for all working families just some of them – even the Wall Street Journal noticed:

“It wasn’t clear how such a tax break might be structured and whether it would be available to tens of millions of families that don’t pay income taxes because they have lower incomes. Making child-care expenses fully deductible would provide much larger benefits to the wealthiest families that have larger tax bills.”

Nice.  However, we can clarify this to some extent.  The Tax Policy Center offers this information about working families, tax bills, and who needs the help the most:

“Only 11.3 percent of households in the bottom income quintile will pay federal income tax in 2015. In contrast, 59.3 percent of households in the lowest income quintile will owe payroll taxes. Combined, 60.3 percent of households in the lowest income quintile will owe federal income or payroll taxes.

In many cases, low-income households owe no income tax. That’s because, in 2015, a married couple with two children can exempt $28,600 from income using the standard deduction and personal and dependent exemptions. Generally, smaller amounts can be exempted from smaller households and larger amounts from larger households.”

The arithmetic is simple. Only a bit over 11% of households in the bottom income quintile owe federal income taxes – and these are the ones which would benefit from Trump’s “deduction.”  What the other 88.7% of the families in that quintile get from Mr. Trump’s “plan” is nothing.

Deregulation

We’ve heard this song before.  More specifically, a campaign aide told the Wall Street Journal, this means Trump wants to slash EPA regulation on carbon pollution, and halt the preservation of wetlands and waterways.  Nothing new here.  It’s the same GOP rhetoric of old, conflating all regulation with EPA and conservation rules.  This, while 1/3rd of the residents of California still lived in areas as of 2014 which did not meet Clean Air standards. [LA Times]

Reporters slid by deregulation of the financial sector (read: Wall Street Casino) However, this past May the Republican candidate called for dismantling the Consumer Finance Protection Bureau, and reversing the regulations in the Dodd Frank Act.  [Fortune]  There’s nothing new here either, just more generalized GOP talking points.

Jolly Little Trade Wars?

“At the same time, Mr. Trump has promised to aggressively use executive power to renegotiate trade agreements, to label foreign countries as currency manipulators and to apply tariffs and other penalties to trading partners.”  [WSJ]

Lovely.  First, China is our Number One import partner.  Mexico is second, and Canada third.  [Census FT]  We’ve imported $212.2 billion worth of stuff from China thus far this year; $145.2 from Mexico; and, $137 billion from Canada.  Not surprisingly these three are also our top three export partners, in order: Canada, Mexico, and China. [Census FT] Is Mr. Trump truly suggesting that we get into economic battles with our top three economic partners?  Are we really going to benefit from practicing Hoover-ian Protectionism in relation to our top three partners?

Trump said:

“At the center of my plan is trade enforcement with China. This alone could return millions of jobs into our economy.

China is responsible for nearly half of our entire trade deficit. They break the rules in every way imaginable. China engages in illegal export subsidies, prohibited currency manipulation, and rampant theft of intellectual property. (65 66) They also have no real environmental or labor protections, further undercutting American workers.”

[…] Trade has big benefits, and I am in favor of trade. But I want great trade deals for our country that create more jobs and higher wages for American workers. Isolation is not an option, only great and well- crafted trade deals are.” [Time]

Yes, Chinese manufacturing policies are heinous.  However, what Mr. Trump has on offer IS protectionism and isolation; no matter how politely it’s phrased.   Or how vaguely it’s expressed, as on Trump’s website explanation.  Missing from the Detroit address and the website mentions are the 35% tariffs Mr. Trump proposed last May. [National Review]

Further, Mr. Trump appears to be operating on the happy delusion that simply declaring China to be a currency manipulator will force them to re-negotiate our trade deals.  Not. So. Fast.  Manipulation is in the eye of the beholder.

“Reasonable people can and do disagree about how countries conduct their monetary policies: what price should the central bank fix, or at what pace should that fix evolve. But to label as manipulation the conduct of monetary policy itself betrays a fundamental confusion about the operation and goals of central banks. If Zhou Xiaochuan,governor of the People’s Bank of China, is a currency manipulator, then Janet Yellen is an interest-rate manipulator.” [WSJ]

As is becoming all too noticeable, Mr. Trump’s understanding of the monetary policies involved is essentially shallow. The Wall Street Journal continues:

“Movements in the nominal yuan exchange rate have almost no long-term impact on global flows of exports and imports or on broader considerations such as average wages. The exchange rate that matters for trade flows is the real exchange rate, i.e., the nominal exchange rate adjusted for local-currency prices in both countries.

The real exchange rate, in turn, reflects the deep forces of comparative advantage such as technology and endowments of labor and capital. These forces drive trade regardless of monetary policy.”

Sorry, Mr. Trump, it seems as though a bit more sophisticated understanding of exchange rates is necessary – and, no, merely declaring China a “currency manipulator” isn’t likely to do much, and certainly not much in terms of wages for American workers.  It really would do Mr. Trump some good if he’d check out the article by the Dean of the Tuck School of Business at Dartmouth in the WSJ. [ Also WPO Blog, CFR, and then of course there are the Federalists]  Little wonder Republican economists are jumping ship.

Bottom Line Towards the Bottom of the Barrel

It isn’t hard to summarize Trump’s “Economic Plan,” – first, it’s not a plan.  It is an aspirational outline of economic ideas, none of which are anything new. Romney suggested declaring China a “currency manipulator” during his campaign, and the anti-regulation rhetoric goes back to the 1971 Powell Memo. It’s rather more a laundry list of Republican wishes – deregulate, repeal the Affordable Care Act, bash China, and ‘act strong.’   In this, Mr. Trump seems to be unable to differentiate between acting and posturing.  The speech was all pose in bad prose.

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