I received the following information in an email this morning.
I haven’t written much lately. I especially haven’t written much about politics lately. I am not very excited about this election. That said, I would prefer neither Hillary or Bernie be our next president (that’s not an endorsement for Trump).
Back the email I mentioned. Here is what Oxford Economics has to say about Donald Trump’s tax plan:
If implemented fully, Mr. Trump’s tax proposal would reduce government revenues by just over $4 trillion over the next five years, writes Gregory Daco, Head of US Macroeconomics at Oxford Economics in a research note released today. Assuming 25% of the revenue loss would be offset by reductions in government outlays (and the remainder would be deficit financed) his plan would send the US economy into a recession by the end of 2017.
The report makes these additional points:
• Under Mr. Trump’s budget proposal, the unified budget deficit would widen to nearly 7% of GDP by the end of 2018, compared with 2.8% in our baseline, while the federal debt to GDP ratio would surge from 77% of GDP today to 95% by 2020. This would likely cause severe stress in bond markets.
• Higher interest rates would lead to substantial crowding out of private investment, consumer spending and housing activity.
• On the individual tax front, reducing marginal tax rates, collapsing income tax brackets, repealing the AMT, increasing deductions and taxing carried interest income as ordinary business income would likely stimulate spending and overall activity. However, the skewed distributional nature of the tax cuts – favouring higher income individuals – and higher interest rates would severely limit the boost to spending.
• On the corporate side, the prospect of lower tax rates would initially stimulate a desire for investment, but higher borrowing costs would rapidly deter business investment.
• Factoring in severe government spending cuts, the US economy would contract 2% in 2018 compared with a 2.4% expansion in the baseline. It would count 3 million fewer jobs by the end of Mr. Trump’s first term.
• Under a more realistic scenario where Mr. Trump’s plan is made deficit-neutral to pass Congress, the economy would avoid a recession, but still grow slower than in our baseline and count 1.1 million fewer jobs by the end of Mr. Trump’s first term.
I have no idea how accurate these numbers are and I haven’t read the full report. I would hope that government would be financed through tax revenues rather than deficit spending. That would mean cuts in spending, which I think are necessary. The government is bloated. It needs to be pared back and the focus should be on only what’s important. It’ll never happen, though. Politicians love spending money on their favorite projects in order to buy votes. Politicians think their job is to stay in office.
I searched Oxford Economics’ website but didn’t find any information on Hillary Clinton’s tax plan. Hopefully one will be forthcoming.