Candidate's Economic Platforms Couldn't be More Different

Nicholas Mangee

Abstract

Many people are looking forward to a post-election America, one which focuses on our collective similarities rather than our inherent differences. However, we cannot skip ahead. The stakes are simply too high for the upcoming election. While both candidates claim to have an interest in enhancing economic growth and job creation, and reducing poverty and income inequality, their pathway to achieving those goals couldn’t be more dissimilar. In fact, the candidates have done a wonderful job of separating themselves on economic policy, especially on the fiscal front

owever, we cannot skip ahead. The stakes are simply too high for the upcoming election. While both candidates claim to have an interest in enhancing economic growth and job creation, and reducing poverty and income inequality, their pathway to achieving those goals couldn’t be more dissimilar.

In fact, the candidates have done a wonderful job of separating themselves on economic policy, especially on the fiscal front. Trump’s policies would reduce tax rates, simplify many tax provisions and reform business taxation. His proposals, however, overwhelmingly favor tax cuts to the richest Americans.

The non-partisan Tax Policy Center, for instance, estimates that for 2017 the highest income earners, or those with gross incomes over $3.7 million, would receive an average cut of $1.1 million, or an increase of 14 percent of after-tax income. The middle 20 percent of income earners would receive an average cut of $1,010, or 1.8 percent of after-tax income. The poorest 20 percent would receive an average cut of $110, which is less than one percent of after-tax income. This plan is extremely regressive in nature.

Trump also proposes to reduce the number of marginal income tax brackets from the current seven to just three. As we know, the progressive nature of our marginal tax bracket system combined with the numerous brackets helps to dampen the damage inflicted by an economic contraction. When national incomes decline, as they typically do during tough economic times, the costs to households may be reduced by falling into a lower marginal income tax rate. This type of a policy is known as an automatic stabilizer and, all else equal, reducing the number of tax brackets reduces the likelihood that individuals may derive this benefit inherent to our current tax system.

Trump’s beneficial tax policies for the wealthiest Americans don’t end there. He vows to reduce the corporate income tax rate from the current 35 percent to a flat 15 percent. While the U.S. carries one of the highest corporate rates on paper among OECD countries – and could benefit from a somewhat lower rate phased into law gradually over time – the dramatic reduction in the short run amplifies the massive revenue losses under Trump’s fiscal plan.

This “Trumped-Up” version of typical supply-side economics, though it likely simplifies the overall tax code, really hinges on the notion that individuals and firms respond nearly 100 percent to tax cuts and increases in after-tax income by increasing their supply of labor and savings. And, even though the last 30 years of evidence have nearly debunked the hypothesis of trickle-down economics for spurring economic growth, the ideologues are still alive.

By contrast, Clinton’s fiscal policies propose substantial tax hikes for the same groups of high-income earners. While middle and lower income earners have not been factored into her tax policy at this time, 94 percent of the tax burden from her proposed policies rest squarely on the top 20 percent of income earners. Within that group, the burden falls disproportionately on the top one percent of the richest individuals. Thus, at face value, her fiscal policies are very progressive in nature.

Clinton proposes, amongst other policies, a 30 percent minimum tax on incomes over $1 million (the so-called “Buffet rule”), instating a four percent surcharge on adjusted gross incomes over $5 million, reducing estate tax deductions limits, and creating a new tax schedule for capital gains. While her policies are estimated to increase federal revenues, they likely will add to the complexity of our current tax system. Adding to this complexity is her proposal to limit the ease with which U.S. companies may declare ownership abroad so as to benefit from foreign corporate tax codes.

While the two presidential candidates differ dramatically across many flavors of policy, ranging from national security to the regulatory corporate framework, their fiscal policy platforms may be the most dissimilar. Simply put, Trump’s tax plan disproportionately favors the richest of the rich – think Bush-era tax cuts on steroids. Clinton’s plans, by contrast, disproportionately increase taxes on the richest of the rich.

The Tax Policy Center estimates that one candidate’s policies would add trillions to the debt over the next 10 years while the other candidate’s policies are estimated to actually reduce the debt. Can you guess which is which?

Nicholas Mangee, Ph.D., is an assistant professor of Economics at Armstrong State University and can be reached at Nicholas.mangee@armstrong.edu.

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