Jeff, with all due respect to your observation that Trump’s plan for tax reform is “also the most faithful to supply-side principles,” there may be less here than meets the eye. Trump is no supply-sider. His mercantilist/protectionist tendencies on trade and restrictionist tendencies on immigration would, if enacted, profoundly retard economic growth. Trump’s Supply Side credentials are beyond dubious.
As for his tax plan, it would be reckless to rely too heavily on Trump’s dubious claim that it “Doesn’t add to our debt and deficit, which are already too large.” For supply-side deficit hawks (from the Reagan/Rueff/Lehrman wing of Supply Side) like us, this is really important. Trump’s new tax plan as scored by the Tax Foundation would raise the national debt by $12 trillion over ten years. Trump’s claims of plans to make offsetting budget cuts are, even if (unproved) credible, far lower than the cost.
Mr. Trump claims that his plan would produce 6 percent GDP growth. That, combined with spending restraint, would of course do it. But where does he get the 6 percent?
Sounds like trademark Trump bravado, eerily similar to reports of his management of Trump Air: “He trotted out plans to attract customers—but many of them made no sense from a business standpoint. Those who worked with him at the airline describe him as a loose cannon….” Trump Air, of course, was a notable failure.
Something in the Trump plan seems, if only to me, to have more, paraphrasing Colbert, “Supplysidiness” than true Supply Side. The essence of Supply Side, as you knew well before me, is to foment economic growth in an across-the-board manner.
One fly in Trump’s tax plan ointment implicitly is alluded to in your blog: “Reagan’s tax rate reductions, which saw the top rate on personal income drop from 70 to 28 percent between 1981 and 1988….” Reducing the top rate from 39.6 percent to 25 percent is a vastly smaller marginal rate reduction than was 70 – 28. It is by no means a given that it would generate as much economic growth as did Reagan, who clocked in, post-recession, averaging around 4 percent.
Moreover, Trump’s cutting corporate tax rates earns a rueful shot of whiskey or bourbon from the Frank Cannon CPAC Drinking Game Rules based on the GOP’s inherent propensity to lean toward business rather than labor.
Supply Siders (like you and like me) believed — and believe — that by cutting prohibitively high marginal tax rates the deficit would transform into a surplus by virtue of the growth of the tax base (coupled with spending restraint). While it’s intuitive that 70 percent —even 50 percent — is prohibitive, it’s less so that 39.6 percent is prohibitive, and, if so, to what degree it degrades economic growth.
Bill Clinton raised the top marginal tax rate from 28 percent to 39.6 percent — which I find as regrettable as surely you do. Yet job creation and economic growth continued at a sizzling pace — the main point of Supply Side economics. I believe that had he not raised the top marginal rate, growth would have been even better. That said, this raises doubt about Trump’s extravagant claims.
To be sure, Clinton, under pressure from Speaker Gingrich (himself under relentless pressure from one Jude Wanniski), cut the capital gains rate. Clinton also reformed welfare. Both were excellent Supply Side policies and surely contributed to the growth. These steps do not, however, in any way ground Trump’s posited 6 percent growth rate.
I infer that Trump — unlike Kemp and Reagan (and you!) did in the day — does not really have his eye on economic growth and is offering a naive caricature of a Supply Side tax plan. Supply Siders were entrepreneurial, not profligate. And while several of Trump’s enterprises have stuck it to his creditors, the United States of America is not, and should not be treated as, a casino.
As I have written elsewhere: “Because the T in trillion is so, well, demure, let’s unpack that for just a moment. One trillion dollars is a thousand billion dollars. One billion dollars is a thousand million dollars. So ten trillion dollars is ten million million dollars. That’s a lot of dollars, whether from taxing or borrowing, with which to finance these ostentatious proposals. We in the media have not been nearly incredulous enough.”
Jeff, I’m an outlier. Trump’s plan has received respectful, if qualified, notices from you, Larry Kudlow, and Steve Moore. It has received the “Good Housekeeping Seal of Approval” that it is not a net tax increase from Americans for Tax Reform. I’m all for closing the deficit through economic growth, not tax increases. We also share a belief that bad monetary policy by the Fed — the invisible other half of Supply Side and Reaganomics — is the real culprit for economic stagnation.
I’ll believe that Trump is a Supply Sider when he drops his proposed tariff walls and anti-immigrant rhetoric, starts crusading for high integrity monetary policy, and offers us a tax reform plan that does not rely on cockeyed projections of economic growth and really makes good use of the Laffer Curve to generate so many jobs and so much economic growth as to put the federal government again back into good old Supply Side surpluses.
Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles in Action’s Senior Advisor, Economics.