By Gary D. Halbert. Originally published at ValueWalk.
Trump/Clinton Economic Plans Revisited, Extremely Different
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
September 27, 2016
- Trump’s Economic & Tax Plan Looks a Lot Like Ronald Reagan’s
- Clinton’s Economic & Tax Plan is a Lot Like Obama’s, But Worse
- Are You an Accredited Investor? If Yes, Let Us Know ASAP
Overview
For the last several years, the economy has ranked #1 among the greatest concerns expressed by most Americans. And as we all know, the state of the economy has a huge bearing on the investment markets. With that in mind, let’s take a look today at the latest economic and tax proposals of the two presidential candidates, Hillary Clinton and Donald Trump.
Both candidates have made tweaks and changes to their economic and tax plans in recent weeks, and both have made more details available about how their plans should work. But even with the latest changes, both candidates’ plans are night-and-day different.
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Trump’s Economic & Tax Plan Looks a Lot Like Ronald Reagan’s
As a way of getting into today’s discussion of Trump’s economic and tax plan, let’s briefly go back and look at President Ronald Reagan’s economic and tax plan which he unveiled in 1981 after taking office. There are a lot of similarities.
Early in his presidency, Ronald Reagan enacted historic tax cuts to save the economy from the high-unemployment, high-inflation left over from the 1970s. Reagan acknowledged many times that he was following in former President John Kennedy’s footsteps. Many Americans don’t remember Kennedy’s tax cuts because they were enacted after his assassination.
Both presidents, Kennedy and Reagan, followed an economic growth model that emphasized tax cuts and policies that supported a strong US dollar. Both men also reached across the aisle and garnered strong bipartisan support for their plans. That was another day, of course.
Under Ronald Reagan, individual tax rates were slashed from 70% to 28%, corporate taxes were significantly reduced and numerous loopholes were closed. And the American economy grew mostly between 4% and 5% annually for years thereafter.
Earlier this month, Donald Trump went a long way toward joining the ranks of Kennedy and Reagan. Speaking at the Economic Club of New York on September 15, he delivered a bold, optimistic growth message that falls squarely inside the JFK-Reagan model. He said at onset:
“My economic plan rejects the cynicism that our labor force will keep declining, that our jobs will keep leaving and that our economy will never grow as it did once before.” In short, Trump’s plan was based on a vision of optimism rather than the status quo (Obama/Clinton).
Trump established a goal of 4% annual economic growth, which would double the stagnant rate of the past eight years. The centerpiece of his plan is a reduction in business tax rates for large and small firms to 15% from the current uncompetitive 35%-40%, the highest in the developed world.
High business taxes are the biggest obstacle to a return to rapid economic growth. Abundant research has shown that the best way to raise wages and create jobs is to slash business taxes. Within five years a business tax cut will pay for itself, and then some.
In addition, he proposes immediate expensing for corporate new investment. This move alone could spark a significant increase in business spending on plants, equipment, technology and of course new jobs.
Perhaps equally important, Trump proposes a one-time 10% repatriation tax rate to incentivize American firms operating overseas to bring an estimated $2.5 trillion of offshore profits home. This money could also be used almost immediately for new business investment and job creation. Together, these business tax proposals could really goose the economy.
How about individual tax reform? Trump plans to reduce individual tax rates with three new brackets of 12%, 25% and 33% as the top rate. He would cap deductions for the wealthy and close special-interest loopholes. Middle-income wage earners will be the biggest beneficiaries of these reforms.
On top of the tax cuts, Trump promises to roll back out-of-control regulations, unleash American energy and replace the Obamacare failure. Following the successes of the JFK and Reagan tax reforms, it is possible that Trump’s strategy could actually generate 4% to 5% growth over time. As has happened often in the past, a rising tide will lift all boats.
The question, of course, is how will Trump pay for all these tax cuts. Trump claims that if economic growth surges to 4%-5%, that will pay for most or all of it. His critics claim that he will add $4-$5 trillion to our national debt over the next 10 years if the economy doesn’t respond.
The questions about how Trump will pay for his economic and tax plans are indeed valid. And I will come back to those questions at a later time. Now let’s shift our attention to Hillary’s latest economic and tax plans.
Clinton’s Economic & Tax Plan is a Lot Like Obama’s, But Worse
The contrast between the presidential contenders could not be starker. Hillary Clinton would raise taxes on so-called “rich people,” corporations, capital gains, financial transactions and inheritance – despite the fact that America has never taxed its way into prosperity.
Since I am biased against Hillary, I will summarize her economic and tax plans as reported by USA TODAY in mid-August when she announced them, along with subsequent changes.
Raise Personal Income Taxes. Clinton would increase taxes, mostly on the wealthy, to pay for her new (bigger government) programs. The top 5% of income earners would bear 90% of the increased tax burden, according to the Tax Policy Center. The impact on spending and the economy is expected to be modest because wealthy individuals tend to save, rather than spend, their incremental income.
Still, “it’s going to hurt spending, saving and investment” to some extent, says Mark Zandi, chief economist of Moody’s Analytics. It also makes the tax code more complex, he says. Although the plan would generate $1.1 trillion in additional government revenue over the next 10 years, it will be more than used up by additional spending.
Raise certain corporate taxes. Clinton has no plans to reduce the corporate tax rate, which many experts say should be lowered from the current 35%-40%, the highest in the developed world, to make the US more competitive. Meanwhile, Clinton has proposed a new tax on high-frequency trading, and an “exit tax” on companies that move operations overseas. She has not addressed reducing taxes for small businesses, many of which pay the so-called “pass-through” rate based on their personal income taxes.
Crack down on trade violations. Like Trump, Clinton says she wants to crack down on China’s currency manipulation and theft of US intellectual property, adding she’ll beef up trade enforcement. Clinton says she’ll impose targeted tariffs on countries that violate trade protocols.
Clinton has echoed Trump in saying
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