Friday, May 25, 2018
Editorials

Another voice: Trump's economic folly

Donald Trump said Monday that he wanted to usher in "economic renewal," but most of his proposals would hurt the economy, rack up huge deficits, accelerate climate change and leave the country isolated from the world.

In a speech billed as a blueprint for stimulating growth and creating jobs, Trump offered a grab bag of ideas that borrow from discredited supply-side economics, the fossil fuel industry's wish list and "America First" isolationism. He also criticized Hillary Clinton and President Barack Obama for what he called their "job-killing, tax-raising, poverty-inducing" agenda. It was vintage Trump, full of promises of greatness and victories backed by fantastical proposals.

Trump told the Detroit Economic Club that he would cut taxes to an extent not seen since Ronald Reagan was in the White House. He said he would slash the corporate tax rate to 15 percent, arguing that the current statutory 35 percent is one of the highest among developed countries. He did not mention that the average effective corporate tax rate was 18.1 percent in 2015, including state and local taxes, according to the White House and the Treasury Department. He claims he would help workers by getting rid of the estate tax, though repealing it would have almost no effect on working families. Under current law, that tax doesn't touch 99.8 percent of all estates because it applies only to that portion of an estate that exceeds $5.4 million for an individual or $10.9 million for a married couple.

The big problem with Trump's tax ideas is that they would leave a multitrillion-dollar deficit for no benefit. Proponents of supply-side economics argue that cutting tax rates encourages people to work and businesses to invest. But the gains are much more modest than proponents claim because many businesses won't invest unless demand for their products is growing and many people are not motivated by lower tax rates to work more.

On the other hand, significant tax cuts exact very real costs. Trump's previous tax plan, released last year, would have reduced federal revenue by $9.5 trillion over 10 years, according to the Tax Policy Center, meaning that Trump would have to slash government spending or increase borrowing substantially. George W. Bush pushed big tax cuts through Congress in 2001 and 2003 with the promises of strong growth that never materialized.

Trump also promises to take a machete to federal regulations and put a moratorium on new rules. He wants to get rid of environmental policies that he says are driving up the cost of electricity by restricting the production and use of coal and other fossil fuels. In fact, electricity rates, adjusted for inflation, have increased just 2.2 percent, to 12.82 cents per kilowatt-hour, from 2008 to 2015 and are expected to decline to 12.64 cents this year, according to the federal Energy Information Administration.

Increasing fossil fuel production, and the carbon dioxide emissions associated with it, is exactly the wrong strategy at a time when the world has become increasingly concerned about global warming and its disastrous consequences. But this is of little concern to Trump, who has dismissed climate change as a hoax and whose "energy revolution," as he outlined it Monday, made no mention of carbon-free renewable energy sources.

On trade, Trump renewed his pledge to kill the Trans-Pacific Partnership, an agreement that Obama negotiated with 11 countries. Trump claims he can bring back millions of manufacturing jobs to the United States by slapping retaliatory tariffs against China for manipulating its currency, offering illegal subsidies to its exporters and stealing intellectual property from U.S. companies. But such actions would do nothing to re-create jobs that have been replaced by automation, and companies could move production to other developing countries.

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