How Economists Have Assessed The Trump Tax Plan

Written by N. James Brago; Photo Courtesy of Mary Pahlke

With the electoral election of Donald Trump, the progress of our economy for the past eight years may be in jeopardy. Under President Obama, we have seen the unemployment rate drop to 4.9 percent from its height during the recession of 10 percent. By November 2015, the Obama economy created a gain of 8.7 million jobs. So far, we have avoided recessions for the past 8 years. Our economy was looking to return to normal under a President Hillary Clinton, but that was thrown out the window on Nov. 8. Now, we are looking at a president who promises to undo the economic and social progress we have made in the past eight years, and maybe even the past 50.

Just one of his many potentially damaging policies would be his tax plan.

Donald Trump’s tax plan will include extensive tax cuts on the wealthy. This includes cutting the corporate tax rate from 35 percent to 15 percent and eliminating the corporate alternative minimum tax. Trump also calls for an abolishment of the estate tax, which is the tax that is imposed on the large transfer of wealth and assets after a person dies.

His income tax plan is as follows:

This tax plan sounds a lot like Trump giving himself a large tax cut. Tax cuts primarily benefiting the wealthy seems like a strange way of increasing middle class and lower class incomes. His tax plan, objectively speaking, will result in a ballooning of debt. Not only does he want to cut taxes across the board but he also offers to increase our military budget. Meanwhile, we already spend more than 50 percent of our discretionary budget on our military.

With ballooning deficits, it is feasible to believe that the Republican-led congress will act to attempt to balance these deficits. The person that will lead the way is most likely House Speaker Paul Ryan who has called for cutting programs such as Medicare, Medicaid and Social Security. Cutting these programs will leave millions of Americans in economic hardship. Ryan could also attempt to curb some of Trump’s spending programs that he’s given.

In regards to immigration, Trump’s policies of deportation will decrease the American labor force by at most 5.1 percent, according to a paper from Moody’s Analytics that analyzes the large scale economic consequences of Trump’s proposals.

Mark Zandi, chief economist at Moody’s Analytics, is a registered Democrat who donated $2,700 to Hillary Clinton’s campaign. He also supported republican John McCain n 2008 as the campaign’s economic advisor, and he’s not at all the only economist to view Trump’s proposals as a threat to the economy. In fact, 370 economists and 8 Nobel Prize winners signed a letter opposing Trump’s election.

So what does a decrease in labor force as a result of deportations mean? Well, it means that there will be a shortage of labor, leading businesses to cut production. Cutting production will decrease wages for American workers. Combine that with the massive concentration of wealth being redistributed to the top 1 percent, Americans will have less money to spend.

Consumer spending will decrease, thus the gross domestic product (GDP) growth will become negative. There may be another recession, according to a paper written by Zandi and his colleagues describing the potential economy, if Donald Trump’s proposed policies go through without mitigating factors:

“The U.S. economy will weaken significantly if Mr. Trump’s economic policies are fully implemented as he has proposed. The economy will suffer a recession that begins in early 2018 and extends into 2020 will decline peak to trough by close to 2.4%. This would be an unusually lengthy recession—even longer than the Great Recession—although the severity of the decline in economic activity would be more consistent with a typical recession suffered since World War II. Employment will continue to decline and unemployment will rise into the next presidential term, with the unemployment rate peaking at 7.4% in summer 2021.”

There is a possibility that his policies do not create a recession however. In fact, under a Trump presidency the possibility of stable inflation, higher GDP, and lower unemployment rates is certainly conceivable. This looks promising, considering the economy is currently in a fragile state of recovery. His policies of deregulation and infrastructure spending can certainly do well in increasing GDP and lowering unemployment. Cutting taxes for the middle and lower class will spur consumer spending for a certain period of time. Trump’s indication that he will be more lenient on fracking and natural gas production could boost the economy in fracking states, although the process has been exposed to cause severe environmental instability and pollution contamination. The overall long term effects of Trump’s policies are mere speculation at this point.

Nonetheless, there may be multiple different routes leading to possible economic recession under Trump. Another being that Trump has stated that he wants to get rid of financial regulations, especially Dodd-Frank. Dodd-Frank was a Wall Street reform bill that was passed in the wake of the financial crisis. Dodd-Frank established federal agencies to regulate financial institutions from making reckless investments that put the primary functions of banks as healthy lenders at risk. Although much more regulation is needed, Dodd-Frank has been seen as a success. A repeal of Dodd-Frank holds the possibility of a repeat of the financial crisis of 2007.

Oxford economics has stated that if Trump’s policies are successfully implemented, the economy could be $1 trillion dollars smaller than it is expected to be by 2021.

The most probable scenario right now is short term growth and long term damage if Trump’s proposals are enacted. The short term growth could be very good in the sense that there will be more jobs under an infrastructure program and GDP will rise. Trump’s proposals include increased spending on things such as childcare which, come to find out,  will actually benefit wealthier families, and military/veteran funding.

The long term damage the nation now faces is a continuation of wealth inequality by cutting taxes for the wealthy and corporations. Not to mention the inevitable environmental damage if Trump cuts red tape on fracking and coal. He offers no plan to raise the minimum wage, to make healthcare more affordable and accessible under Obamacare or to address the outrageous prescription drug prices.

There’s also the question of long term detriments to the American economy. Economists like Paul Krugman, a Nobel Prize winner in Economics and supporter of Hillary Clinton, say that a Trump economy will have long term negative effects. Climate Change and wealth inequality pose major threats to both the middle and poor class. Neither issues are on Trump’s list of “Things To Solve.” Even if there is no recession as Moody’s predicted under certain conditions, there will not be much positive change for the working class.

So what kind of damages should we be preparing for once Trump begins implementing his lackluster policies? Well, it’s simply too early to tell. Trump is not even the president yet. For all we know right now, he could not do a single thing that he proposed, or he could do everything that he proposed; we just don’t know. We do know, however, that over 40 million Americans are living in poverty, and life for the typical American family is getting harder and harder. We do know that wages are stagnant and costs are rising. All we can do is hope that Trump will be serious about addressing these issues and sign bills that will build up all Americans, not just his select few.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s