Somehow Donald Trump ended up in the White House–an outcome that seemed to surprise even him. Now he needs to figure out what to do next. (No, the campaign promises don’t provide any sort of coherent guide.) Early indications are that Trump will try to implement policies that are popular, at the cost of imposing burdens on future generations (via global warming or massive deficits or a health insurance death spiral or a loss of US foreign policy credibility.)
The Financial Times reports that Trump’s proposed tax cuts would balloon the deficit:
The package would be hugely costly if it ever saw the light of day — suggesting that it was more a mechanism for signalling the direction the administration wants to take, rather than a detailed set of proposals. Estimates from the Committee for a Responsible Federal Budget suggest the measures would cost $5.5tn over a 10-year period, with the corporate tax cut the most expensive measure.
The proposal does contain lots of good ideas, such as eliminating the deductibility of state and local taxes (which would hurt me, but is still a good idea.) It would also eliminate the AMT and death taxes, both long overdo. Unfortunately, Trump doesn’t seem willing to pay for any of this. It’s like someone who wants to eat ice cream and skip the vegetables. Trump seems opposed to cutting government spending, and also opposed to proposals such as eliminating the tax deductibility of health insurance and mortgage interest. He’s also opposed to the border adjustment tax.
[I also oppose the BAT. But I’d still prefer the Brady bill, despite that provision, as it at least tries to be deficit neutral. Even better would be a carbon tax, and/or a higher payroll tax on high wage earners.]
In an optimal fiscal policy, the debt/GDP ratio rises during periods of high unemployment and falls during periods of low unemployment. Trump’s proposal would cause the debt ratio to rise even in good times, and to soar in recessions. And that’s not even accounting for the looming demographic nightmare of boomers retiring. This is a deeply irresponsible proposal. Rather that rejecting the proposal, Congress should keep the good stuff and raise additional funds by closing loopholes. In addition to the ones mentioned above, I’d close the deduction for interest paid by businesses. Instead, I expect Congress to oppose even the one good idea, ending the deductibility of S&L taxes. I hope I’m wrong, but I expect a really bad bill to come out of Congress.
PS. Trump also wants to slash the tax rate for billionaire property developers (like Trump) from 39.6% to 15%, barely half the rate I have to pay. Sad!
PPS. Here are some good articles that I don’t have time to blog on:
1. Why Europe still needs cash
2. Why trade deficits aren’t about trade
3. Why China may be growing faster than the official GDP numbers suggest