Economists Echo Trump-Clinton Debate: Whose Plan Is Better?By
Rich would get tax increases from Clinton, tax cuts from Trump
‘You couldn’t have two more opposing economic outlooks’
Top economic advisers to Hillary Clinton and Donald Trump agree on one thing: The gulf between the candidates’ proposals for creating jobs and paying for government couldn’t be wider.
“This is a night and day perspective,” said Gene Sperling, a former White House economist who’s counseling Clinton, the Democratic presidential nominee. “You couldn’t have two more opposing economic outlooks,” said Stephen Moore, who worked in the administration of Ronald Reagan and is advising Republican nominee Trump.
At the heart of their core difference lies a controversial thesis that took flight in Reagan’s era -- that cutting taxes for the wealthy leads to jobs and economic growth for all. During an echo of this week’s much-watched presidential debate, Sperling and Moore batted that question and other policy ideas back and forth on Wednesday. Their debate was sponsored by the Committee for a Responsible Federal Budget, or CRFB, a nonpartisan policy group in Washington that analyzes proposals’ effects on the federal budget and federal deficit.
Trump wants to cut taxes for individuals and businesses -- benefiting high earners more than lower- and middle-class people, according to an analysis this month by the right-leaning Tax Foundation. Trump says his cuts would reduce federal revenue by $4.4 trillion over a decade before accounting for any economic growth that might result from them.
Clinton’s plans would produce a 10-year deficit of just $200 billion on a static basis -- meaning before considering any changes in people’s behavior that might result from her plans -- according to the CRFB’s analysis. Her deficit number is less than 1/10 that of Trump’s plans, chiefly because she calls for imposing tax increases on high earners, including a “millionaire’s tax” that would require those earning more than $1 million annually to pay a minimum tax rate of 30 percent. She also wants a 4 percent surtax on people who earn more than $5 million a year, and she’d raise the estate tax from the current 40 percent to 65 percent for individuals’ estates exceeding $500 million.
Trump wants to abolish the tax, which currently applies only to estates worth more than $5.45 million. Clinton wants to raise its base rate to 45 percent and apply it to estates worth $3.5 million or more.
But whose plans would lead to a better economy? Trump’s advisers say his tax policies would spur enough growth that -- on the basis of so-called “dynamic scoring,” which does try to consider behavioral changes -- they’d really only cost about $2.6 trillion over 10 years. That remaining deficit, they say, would be wiped out by still more growth -- resulting from Trump’s plans to overhaul trade policies, curtail business regulations and stimulate the U.S. energy industry -- as well as his plans to cut federal spending in areas outside of defense and entitlements.
Trump’s campaign says his policies would generate annual growth of 4 percent -- roughly four times recent growth rates. Economists disagree on whether plans like Trump’s lead to rapid growth. A 2012 survey of economists by the University of Chicago found that about one-third thought cutting taxes would boost economic growth.
A 2016 paper by the Brookings Institution, a Washington-based policy group, concluded that revenue-neutral tax cuts -- those that were balanced by increases elsewhere -- could provide a “modest boost” to economic growth. But it contained an important proviso: Effective growth policy requires “careful targeting of tax cuts toward new economic activity, rather than providing windfall gains for previous activities.”
Trump’s tax cuts are broad. He calls for collapsing the current seven individual income-tax rates to just three; the top rate would be 33 percent, down from the current 39.6 percent. He’d double the standard deduction for middle-class taxpayers and tax all business income that’s retained by businesses at a flat 15 percent rate.
Under Trump’s 15 percent tax rate, “you’re going to see a huge flow of investment -- we estimate $2 trillion,” Moore said Wednesday. The current U.S. corporate tax rate, 35 percent, is the highest in the industrialized world -- and Moore said it has driven many U.S. companies to shift their tax addresses overseas. “That giant sucking sound you’re going to hear is companies fleeing back to the United States,” he said.
Clinton is focused on using proposed tax increases on the wealthiest to finance benefits for middle-class taxpayers and reduce inequality, said Sperling, who was the top economic adviser to Clinton’s husband, former President Bill Clinton, from 1996 to 2001 and later to President Barack Obama from 2011 to 2014.
“For me, the North Star of policy is, ‘Are you helping have a stronger, more inclusive middle class?’” Sperling said.
Clinton has proposed spending as much as $500 billion on making college more affordable and about $250 billion in tax cuts for taxpayers with children, according to the CRFB’s analysis.
Her goal, Sperling said, is “having a country where the accident of your birth doesn’t determine the outcome of your life.” He called Trump’s planned tax cuts “terrible, horrible, very bad,” and said Clinton wants “strong growth, but fair growth” that focuses “on value over volume.”
Moore countered that Clinton’s tax increases for high earners would “create another industry” for specialists who sell tax-avoidance strategies.
Trump’s plan has also stirred confusion among tax specialists this month. He wants to extend his 15 percent tax rate to businesses, like partnerships and limited liability companies -- if those companies change the way they operate and begin retaining their earnings. Under current law, such businesses operate as “pass-throughs,” meaning they pass their earnings through to their owners, who pay tax on that income at their individual tax rates. The pass-through structure is a mainstay of not just small businesses but also private-equity funds and other investors.
Trump owns hundreds of companies organized as pass-throughs, which has prompted Clinton to label his proposal to change their tax rates “the Trump Loophole.” In recent weeks, Trump’s advisers have made conflicting statements about whether the 15 percent rate would apply to all pass-through businesses. Moore didn’t clarify the question Wednesday; he told reporters after the debate he wasn’t sure how Trump’s plan would affect private-equity partnerships, for example.