With some good evidence of recent sagging poll numbers, at just the right time Donald Trump announced his new tax plan to add new credibility to his candidacy. The plan does cut the top tax rates to a maximum rate of 25%, and eliminate many current taxes including the inheritance tax as well as cutting capital gains taxes. In theory, this could work much like the old supply side economics of the 1980’s Reagan Administration tax cuts once did, but while this provided a temporary boost to the economy, it was paid for with higher federal budget deficits as well as more national debt.
Social programs also suffered program and budget cuts. And, like Reagan, Donald Trump is calling for increased military spending, while at the same time attempting to cut the tax revenues available to pay for all this. Reagan’s increased military spending took place while a reformer Soviet President Mikhail Gorbachev was actually attempting to exit Afghanistan and to cut his nation’s nukes, and was not actively seeking to counter the U.S. with new military spending. Reagan’s policy was a big boost to military contractors, who often provide relatively few jobs, despite the high costs of the weapons orders. In other words, increased military spending does not really have a huge overall benefit to the economy as a whole, puts a great deal of money into relatively few hands, and does come at the cost of cuts to other programs such as social programs, or the typical classical “guns vs. butter” argument that economists will make. And like Reagan, Trump doesn’t appear to be responding to any real true existing nation threat at this time, although the Putin regime is modernizing it’s military inventory as well involved in a more active foreign policy in both Syria as well as in the Ukraine. ISIS is indeed a growing regional threat in the Mideast, however the U.S. is not that engaged in countering this threat and with the announcement of the U.S. discontinuing the $500 million effort to train antiAssad rebels, the U.S. appears to be backing off from countering a growing Russian military presence in Syria, or a seeming proxy war standoff.
For peacetime economic ends, Trump argues that he would challenge so many job exports and import products shipped into the United States. But, such a philosophy hardly changes the current patterns of trade, reverses investments in overseas production or existing free trade agreements such as NAFTA or other existing policy. While cutting taxes for the wealthy and for corporations to philosophically improve the American economy sounds like an excellent goal, actually targeting those tax cuts to an actual sea change in American productivity vs. foreign imports or American production overseas is much more difficult to change.
The Trump tax plan could expand the national debt by another $7 trillion dollars while also increasing the short term budget deficit by something on the order of $426 billion, forcing massive spending cuts and program cuts, while at the same time there appears to be little to prove that the massive tax cuts would immediately increase the overall tax supply of funds to pay for the cost of the cuts. In other words, there is little evidence that all boats would float here.
But, other evidence is certain that with less taxes, the wealthy or corporations would likely make new investments in business, so a long term economic benefit could not be entirely discounted. Other Republican candidates are talking much the same of tax cuts, yet Republican control of Congress has been around for many years, with little evidence that this Republican controlled congress made much of any attempt to reform taxes. Suddenly, in the heat of a presidential campaign, now some candidates are claiming to support a new Reagan-styled message of tax reform.
But, Donald Trump also has many valid points about so many U.S. jobs being exported overseas. However, higher American wages, and not really tax rates entirely explain much of this. When American corporations can pay $2 or less an hour to the best highly paid Chinese factory jobs, vs. much higher salaries to American workers, Donald Trump has little explanation other than tax cuts to hope to reverse this trend.
In all fairness, Donald Trump is indeed a patriot who loves this country, but his ultranationalistic goals are often a lot of philosophy, but clash with the reality of many structural issues such as higher American wages or government regulations here that make exporting jobs overseas seem attractive to many businesses. As with everything, with the Donald Trump tax plan, the devil is in the details…