Clinton, Trump, and your money: Comparing the economic plans 2016 presidential candidates
By Dale Schlundt
There is such a great number of partisan authors who tell you whose fiscal policies are the best and many make valid points. However, one lesson we take from history is that there are viable elements in both political ideologies. Many times policies offer greater insight than a candidate’s own words in the context of a political race. Rather than solely judging candidates based on rhetoric, voters should also critically look at the policies offered by the candidates to achieve a more realistic image of the future. Tax plans and economic proposals are excellent places to begin this quest.
For instance, the Republican candidate Donald Trump proposal includes a reduction of income taxes across the wide spectrum of earners. Trump compares this to Reagan’s economic policies of the 1980s. Although, we should remember not identical in terms of tax policy changes throughout Reagan’s Administration. In addition to large and significant decreases, the high earners being leading recipients in those years, also present were increases. Historians suggest the former of which has been Reagan’s legacy in the eyes of the public.
The corporate tax rate would be substantially lowered to 15% under Trump’s fiscal plan. Tax on long-term capital gains earnings does not surpass 20%. Trump is also promoting an end to corporate loopholes, such as on corporate deferral. The prediction being this would potentially reduce, not eliminate mind you, the incentive for corporations to have subsidiaries residing overseas. Although, under this plan tax credits will continue to stay in place for what is paid in foreign countries where profits are seen.
One may ponder the scope of impact on the U.S. economy as a whole. The reduced interference in the economy is meant to create the proper environment for the economy to thrive. The analogy would be that one does not grow a plant, rather puts it in the ground and creates the proper environment for it to grow itself. According to Alan Cole’s work for the Tax Foundation, Trump’s proposal would culminate in an 11% increase in GDP, concluding that more jobs, 5.3 million, would possibly be available. Though an increased potential for investment and discretionary spending as a result of tax cuts is an important factor, there is the thought of theory vs the realization of those outcomes.
Elements of Trump’s plan allows for an opportunity to look at the effects of Reagan’s policies for some indication of its vitality. Illustrated by research analysts William A. Niskanen and Stephen Moore at the Cato Institute, GDP rose to a higher percentage during Reagan’s terms than during both of the administrations of his predecessor and successor. Also cited is the unemployment rate, which consistently decreased from the time the conservative president took office. Yet, these are statistics that speak of relative success from wide scope. Thereby raising the question of how this approach affects the lower to middle socioeconomic classes, by far the largest demographic in America?
That should be the aim of any political leader, to reach the masses. An article in The Fiscal Times questioning the potential of Trump’s proposals quoted G. William Hoagland from the Bipartisan Policy Center stating, “concern that such a tax plan if enacted would further increase tension and unrest over income distribution issues, while not specifically addressing lower income poverty issue.” Essentially suggesting that a rejuvenation in the economy does not necessarily mean all groups takes part in the success. To the Democratic Party’s point of view, a legitimate concern.
We are well aware Reagan’s policies did not bring absolute prosperity or equality by any standards. The historical record shows that many businesses that did see upswings did not necessarily invest in workers or wage earners. The topic of those who do not benefit from a growing economy raises the hope of regulation that addresses income inequality. Trump has stated he would not raise the minimum wage. While many would argue it is counterproductive, I would suggest reasonable increases work symbiotically with the proposals put forth. Trump would not be the first Republican President to do so. Still, those that do not see wages reflecting market growth or the rising cost of living may continue to be a forgotten demographic. This illustrates the need for reasonable government intervention in welfare, healthcare costs, and others.
Despite Trump’s assertion of an increase in tax revenue from growth in the economy, most analysts including the Tax Foundation, agree that it will not come close to offset the imbalance between what is taken in by the federal government and spent. Trump has pledged not to try to use entitlement programs such as Social Security to compensate for the discrepancy. While this is not a new challenge, the deficit and national debt would undoubtedly need to be addressed.
Conversely, Hilary Clinton promotes tax increases on the wealthy, raising the top rate to 43.6%, and proposing the Buffet Tax which is becoming widely known for setting 30% as the lowest rate for those making over 1 million dollars. Capital Gains Earnings that are not considered long-term under Clinton’s plan (held for 6 years) will be taxed at higher rates for those that fall under the top tax bracket. The Tax Foundation’s analysis suggests the GDP will decrease by 1% over multiple years. Despite increased revenue, which is a relevant topic in discussion of the deficit and national debt, the forecast is a decrease in wages by 0.8% and jobs by 311,000. While these numbers may not appear as devastating from a simple numerical value, one should consider the real human lives that make up these numbers as well as any ripple effects.
The Democratic candidate promises not to increase taxes on incomes under $250,000 and to improve social programs. Data from the Tax Policy Center, cited by The Observer, points to the fact that households surpassing $200,000 only consist of a mere 4% of the population. In that article, Michael Sainato questions if Clinton truly understands who makes up the middle class based on those figures? Yet, Clinton argues that Social Security benefits should be expanded, especially for those in the poverty range. One aspect of the plan is to also raise the limit on income that may be taxed for Social Security, a simple necessity as the population increases and have longer life expectancies.
The current economy would still need be re-energized, regardless of who takes office. Clinton’s focus, including a national increase in minimum wage to $12 an hour, is on investing in industries and people. Funneling money into what one may refer to as a modern economy. Funds as well as policies directed towards science, eco-friendly industries, infrastructure, and higher education. For instance, the call for clean energy has been echoed for long period of time, specifically among liberals, with little success compared to forecasts. While the incentive for these new energy markets is not limited to only creating jobs and consumption, how do we balance true market demand with environmental needs? One does have to question what amount of our federal dollars should be allocated to what industries? Nevertheless, spending is a bi-partisan issue where political ideology will dictate where federal revenue is invested and to what extent.
While Trump suggests tax cuts as well as addressing our trade deficit, Clinton’s focus is on a more active federal role in emerging industries and personal financial security. History proves there are advantages and disadvantages in both. Republicans have many times created a context that allows for bubbles through de-regulation and a simultaneous increase in available capital, which burden the masses. Democrats have many times passed too far reaching regulation and policies that have no real effect, but to create stagnation. As noted by C.R. Cambridge in The Economist, John MaynardKeynes (whose theories became referred to as Keynesian Economics) subscribed to the belief that economic policies need to be relevant and therefore must change based on the economy’s needs. To that point, both candidates’ proposals have elements of merit in them.
One should consider the powerful role Congress plays in tax plans and federal budgets, in conjunction with the executive branch’s own submitted proposals as well as the potential veto of bills. Serving as a reminder that the president is not the sole factor. As in my classes at Palo Alto College, I try to raise questions from a non-partisan and objective standpoint. The quest for knowledge is the true message here. The Federalist Papers demonstrate what it was to be a student of political theory, offering us in depth understanding and view of our Founding Father’s political experimentation. The fact that these pragmatic individuals continuously questioned the political structure lends itself well to suggestion that we should all follow suit. Therefore, let us critically analyze the candidate’s economic policies, not only words in their speeches.
Dale Schlundt holds a Master's Degree in Adult Education with a concentration in American History from the University of Texas at San Antonio. Dale has taught at Northwest Vista College, Our Lady of the Lake University, and is currently a faculty member at Palo Alto College.