It's hard to take Donald Trump's economic policy proposals seriously. Not just because it's difficult to pin down what exactly they are. Not just because it's unclear whether he would actually carry them out or is just trying to capture the voters' attention. Above all, it's hard to take them seriously because of the outrageous consequences that become apparent if we do.
A number of competent, independent economists have analysed parts of Trump's policy proposals, so far as they can make them out, and modelled how the economy would be affected if he were to win and make good on his plans. The results are hair-raising.
Take Trump's flagship policy of radically changing US trade relationships with the rest of the world. As a briefing by Peterson Institute economists sums up, he has threatened punitive tariffs on Mexican and Chinese imports (he has mooted rates of 35 and 45 per cent, respectively), and to unilaterally withdraw the US from major trade treaties. The Peterson economists have modelled the fallout for the US economy from the trade war that would probably ensue. The bottom line: the US would fall into recession and 4.8m private sector jobs would be lost. That's about the same as the number of US factory jobs that disappeared in the decade after China joined the World Trade Organisation, the disruption that perhaps did most to create a constituency for Trump. While most of the jobs lost in the modelled scenario would be in the service sector, the largest proportional damage would, ironically, be in manufacturing, in particular in export-oriented capital goods production. (Read the FT's write-up of the analysis here.)
That's just the beginning. Under a president Trump, the Trans-Pacific Partnership, signed but not ratified by the US, would be stillborn. (Hillary Clinton now says she is against the TPP as well, but her earlier wobbling on trade means the deal has a better prospect of surviving on her watch.) That would give up on the additional growth and jobs the TPP would create. Robert Lawrence, also at the Peterson Institute, has pointed out that while small in absolute terms, the TPP's forecast boost to US GDP is equivalent to the return on $3tn of investment. It would also bring 128,000 more people into work than would otherwise be the case because wages would be higher. And while there would, as with any removal of economic inefficiencies, be losers, "the annual benefits from the TPP are likely to be between 12.3 and 114.5 times the costs". More than enough, that is, to compensate the losers many times over. That would be the right policy; to jettison the TPP would be to forgo both the gains and the compensation.
Then there are the domestic policies. In his own words, Trump promises "tremendous" tax cuts. For once he's not exaggerating. He proposes to reduce personal income tax rates, slash corporate tax rates and kill inheritance tax. That would blow a hole in the public finances. The Committee for a Responsible Federal Budget has examined the two candidates' tax plans, and calculates that Trump's policies would add $5.3tn, or one-fifth of annual national income, to the federal debt by 2026 (and that is positively frugal compared with an earlier plan of his, which would have added $11.5tn). If nothing else, a president Trump would make the deficit great again. (Clinton's plans, meanwhile, raise about as much in new taxes as they commit in new spending.)
Who would benefit? There is a lot of devil in the detail. The change to exemptions for dependants means that many families with children on low to middle earnings would end up paying more in tax than today. On corporate taxation, Trump boasts of getting rid of the disgrace of the "carried interest loophole", which lets hedge fund managers pass off (more highly taxed) labour income as (much less taxed) capital income. It is true that the Trump tax plan closes this loophole. But he opens a bigger one by introducing an even lower tax rate on all business income, even earnings that are today counted as business owners' personal income. That would allow hedgies and many other very high earners to pay even less than today's capital tax rate.
In sum, the ones we can be most sure would benefit from all of Trump's tax reforms are . . . Trump and his children.
