Trump versus Clinton Economics

When I got to fourteen pages writing this memo I figured I had better give you the short version without my usual story and the economic theory. I will simply summarize the four areas of economic differences and give you the economic implications. The major four areas are: Trade, Taxes, Immigration, and Environment.

Trade

Trump

He is against free trade including the current North American Free Trade Act (Canada, Mexico, and USA) and the proposed Trans Pacific Partnership (USA and 12 Pacific countries).

Clinton

Favors NAFTA and TPP with some renegotiation of terms. She is basically a free trader.

Economic theory

Think of it this way. Trump wants to put a 20% tax on all imports. This has four consequences.

First, take a toaster made in Mexico and sold in the USA for $10 and a toaster made in the USA for $11.50. Most consumers are going to buy the $10 toaster. Now add the Trump import tax and the Mexican toaster is $12 so you would buy the USA toaster. As a consumer, not working in the USA toaster company, I get the shaft, because I now pay $11.50 for something I got before for $10.

The second impact is that the Mexicans and Canadians will surely slap the same tax on our goods, so the industries where we make the good cheaper (because they require a more skilled workforce and higher technology) are not sold in Mexico or Canada. If I work in these USA companies, I’m not happy. As a USA citizen, I see there is less taxes collected because we sheltered an inefficient toaster industry, and I pay more for my damn toaster!

The third impact is that the USA toaster company is sheltered and does not have to innovate or obtain a more skilled workforce.

The fourth impact notes that the same applies for voting down the TPP, but additionally we allow the Chinese economy to dominate the Pacific economies.

Taxes

The current tax brackets in the USA are:

Tax Bracket information for 2016 presidential election

TRUMP

Trump originally proposed four brackets but has since reduced it to three. The Tax foundation estimated that plan would result in $10 trillion dollars in lost taxes. The peak rate of over $150,000 (single tax payers) and $300,000 for Married couples was 25%. He reduced that to three brackets recently and the top rate is 33%.

The U.S. corporate income tax rate is 35% and Trump proposes to reduce it to 15%. Comparatively, the worldwide corporate income tax average in 2015 was 22.9%, per the Tax Foundation, or 29.8% when weighted by GDP. Dropping the corporate income tax rate in the U.S. to 15% would allow U.S. companies to hang on to a lot of extra cash that Trump believes would be used to create economic value via jobs, expansion, and mergers and acquisitions. This assumes the spending will be on the USA economy, which is a stretch.

Trump also proposes to end the estate tax.

Clinton

She has proposed that the current limit on payroll taxes of $109,000 (after which you pay no payroll taxes) be eliminated. She also proposes a gun tax. She proposes to increase the capital gains tax (stock and other profits) from 15% to 20%. She has many other specific proposals aimed and increasing the taxes to the rich and corporations.

Economics

Trump’s plan is very costly and essentially a supply side approach depending on the business person and corporations to increase employment. Clinton is a demand sider or Keynesian in approach.

The impact of Trump’s proposal would be a disaster for the equitable distribution of income. Think about it. If a person making a $1.3 million they save $20,000 and the person making $10,000 now pays no tax and saves $1,000. Note that as the distribution of income gets wider, there is always more social unrest.

A corporation making profits of $1 million will save $200,000.

Clinton, on the other hand, will keep corporations looking to off load their profits to corporations set up outside the USA.

Environment

Trump

Believes that global warming is a hoax and therefore our USA coal industry must be expanded to keep us energy independent.

Clinton

Clinton believes that global warming exists and we need to control carbon output. She proposes incentives to increase the alternative energies (sun, wind, and water).

Economic view

It should be noted that before oil prices bombed out that the USA was on target to be the biggest oil producing country in world in 2016 (bigger than Saudi Arabia). The Saudi’s were so worried about the USA becoming an oil exporter they purposely over-produced to drive oil to rock bottom prices so the “fracking companies” would not be able to stay in business.

Economists believe that air pollution does exist and have developed the “bubble concept” where local areas can’t increase pollutants. If a new company enters the area it must pay another company to reduce emissions. This is also where we get the requirement to have our cars checked for efficiency every year. (Side note, early in my career I was fortunate enough to help develop that concept with the fledgling EPA.)

Immigration

Trump

Wants to deport 11.3 illegal aliens and build the famous wall. The crux of his argument is:

The influx of foreign workers holds down salaries, keeps unemployment high, and makes it difficult for poor and working class Americans – including immigrants themselves and their children – to earn a middle class wage…

Clinton

Clinton favors a pathway to citizenship for the 11.3 million undocumented immigrants living in the U.S.

Economics

There are several important points to note here.

  1. Cost of deportation and the WALL

(Numbers cited below are taken from Politico.com, Washington Post, and Business Insider research)

Trump will deport 11 million illegal aliens. A deputy from the Immigration and Customs Enforcement agency (ICE) estimated it costs $12,500 to deport an illegal alien. Multiply that by 11.3 million illegals and you get a whopping $141 billion. It is also estimated that it would take 20 years to kick all the illegals out.

Additional law enforcement and wall construction and maintenance is estimated at $8.4 billion and $5.1 billion.

So, the USA would spend roughly $150 billion on Trump’s proposal.

  1. Currently the USA is at full employment

It is important to note that USA unemployment is currently 4.9% which to the economist is full employment. (At any given time around 5% of the civilian population force is looking for a job that is out there that they have not found yet. This is called Frictionally unemployed.

  1. Immigration Complements the current work force as our workers climb the occupational ladder.

Another key factor is that new immigrant labor is more often a “complement” to than a “substitute” for workers already here. Only a small minority of native-born workers compete with immigrants; research typically shows that as more immigrants enter a local labor market, many native-born workers actually move up the occupational ladder.

  1. USA unemployment is generally a function of lack of education

At the low end of the pay scale, it is true that certain workers, like native high-school dropouts, can face substitution. But their problem is less immigrant competition than their lack of education; immigration notwithstanding, it will be virtually impossible to get very far in this economy without finishing high school.

  1. Bringing the illegal out of the shadows will increase economic activity and wages.

It is also widely recognized that bringing unauthorized immigrants who are already here “out-of-the-shadows,” would lift their own wages (as they would then be covered by labor standards) and the wages of those who compete with them.

  1. Immigrant population is already a large part of USA labor force

It is important to note that these eleven million immigrants represent 3.5 per cent of the US population and 5.1 per cent of the labor force, and their deportation would incur significant costs for the US economy – hurting the housing, construction and agriculture industries, in particular.

 

About Larry Hill

Dr. Larry Hill is Chair and Professor of Economics. Areas of interest include economic analysis, energy economics cost benefit analysis and economy. To subscribe to the email list of Dr. Larry Hill's Economic Memos, contact Tracey O'Brien at obrientr@lewisu.edu. Credentials include 1967 B.S., Indiana State University, 1968 M.S., Indiana State University, 1976 Ph.D., Northern Illinois University He is a member of honorary fraternities in economics and social science. He is currently writing a book on Managerial Economics and revising previous book, "The Basic Macroeconomics of the American Economy"

Leave a Reply

Your email address will not be published. Required fields are marked *