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What Americans should demand from Trump and Clinton on economic policy

Donald Trump unveiling his economic plans in Detroit on Aug. 8.
REUTERS/Eric Thayer
Donald Trump unveiling his economic plans in Detroit on Aug. 8.

Last week was Economic Policy Week for the Trump and Clinton campaigns. On Monday, Donald Trump set out his ideas in Detroit, and on Thursday, Hillary Clinton presented her plans in nearby Warren, Michigan.

Many newspapers, think tanks, and columnists compared and contrasted the candidates’ proposals. The Wall Street Journal, for instance, summarized the campaigns’ positions on a variety of issues, while the Tax Policy Center focused on how the candidates’ tax proposals would affect the federal budget deficit.

I’m not going to do that here. Instead, I think it’s more useful to look at the general approach the candidates are taking toward economic policy. This will shed some light on the questions we should demand that the candidates answer before we vote for them, whether they are running for president of the United States or for the Minnesota House or Senate.

Aches, pains, worries, and diagnoses

Let’s think of the U.S. economy as being like someone who has a variety of aches and pains and who is worried that there might be something seriously wrong. We’ll visit two economic physicians, Dr. Trump and Dr. Clinton, and see what they say about your condition.

First up, Dr. Trump’s office. He greets you: You look terrible, awful! Of course we can fix what’s wrong! You just need to take regular doses of our Miracle Cure™ (available for purchase as you leave the building or online through our website.) You don’t need to visit again, you’ll be fine as long as you keep taking our medicine.

How will these prescriptions help, you ask? Don’t worry, he says, trust us, it will work. Bye!

Next, you visit Dr. Clinton. Unlike Dr. Trump’s office, Dr. Clinton has a gigantic clinic with a variety of specialists. You visit them all, and each of them tells you earnestly why their area is the source of your problems. It’s your hormones, says the endocrinologist; it’s nerve damage, says the neurologist; it’s a musculoskeletal problem, says the orthopedic surgeon; it’s your diet, says the nutritionist; on and on it goes. They all have prescriptions and therapies for you, and you need to apply them all right away.

Will these cure what ails me, you ask? Maybe, maybe not, they all answer together. But it’s the best we have today. Be sure to come back for more visits and tests.

Hillary Clinton discussing her economic plan at Futuramic Tool & Engineering
REUTERS/Chris Keane
Hillary Clinton discussing her economic plan at Futuramic Tool & Engineering in Warren, Michigan, on Thursday.

The Trump economic program is a set of miracle cures: combine big tax cuts (especially for high-income earners) with trade restrictions and deregulation and presto, the economy will be cured. Or, to quote Trump, “I want to jumpstart America, and it can be done, and it won't even be that hard.”

The Clinton economic policies incorporate every expert's solution: targeted tax credits and reductions; infrastructure spending; college loan reform; apprenticeship programs; a higher minimum wage. All good ideas on their own, but will they work together or act at cross-purposes? In other words, will there be the economic equivalent of drug interactions?

Neither package is realistic. Trump’s prescriptions have been tried and have failed (e.g. in Kansas over the past six years.) Clinton is not sufficiently focused, and her plan may contain policies that could conflict with and offset one another.

Goals and policies, in that order

An economic plan requires clear goals with specific policies designed to meet those goals. By this definition, neither candidate has a proper economic plan.

What do I suggest? Here are two clear goals vital to today’s economy:

  1. Promote faster economic growth. From 1929 to 2001, the U.S. economy averaged 2 percent per year growth in GDP in per capita. Since, then, the economy has grown at about 1-1.5 percent per year. Growth of GDP per capita is the key to growth in average incomes.
  2. Promote a more equal, less skewed distribution in of income. Even if we could get the U.S. economy to grow faster, this will be for naught if the majority of the gains accrue to only a small minority. A healthy economic system rewards those who create and nurture that system, and that includes everyone who participates, not just those at the top.

Next, we should apply policies economists know are both theoretically and empirically sound. For instance, economists in the middle 80 percent of the political spectrum would, I think, agree that to promote economic growth and reduce income inequality the tax system should be reformed in such a way as to minimize distortions (that is, stop encouraging households from taking actions only to avoid taxation), minimize tax preparation costs, and minimize the bureaucracy necessary to collect taxes. The result would be to move resources from tax evasion, preparation, and collection to more productive uses, such as hiring more workers, paying existing workers higher wages, and allowing companies to invest more of their income in capital.

What would such a tax reform look like? Here’s a proposal:

  1. Eliminate many (or even most) deductions and credits from the tax code so that the households make decisions based primarily on their own circumstances, not to in order to avoid taxes.
  2. Move from a system of tax brackets to continuous, progressive tax rates. For instance, Donald Trump and House Republicans propose creating three tax brackets with rates of 12, 25, and 33 percent. This system creates “cliffs,” that is places where tax rates suddenly jump when household income changes only a small amount. A better way would be to have the tax rate rise slowly and smoothly as household income rises rather than hit them hard at some arbitrary income level.
  3. Eliminate the distinction between labor income and capital income for tax purposes. Under the current system, someone earning $100,000 in wages pays a higher tax rate than someone else who earns $100,000 in capital gains. Thus, workers and small businesses (who often run their taxes through the personal tax code) end up paying higher rates for no logical economic reason.
  4. Eliminate the corporate income tax and then tax everyone through the personal income tax system as outlined above.

This is an example of the type of plan we should demand from all of our candidates: specific goals with mainstream, realistic economic policies to meet them.

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Comments (13)

excellent suggestions!

I like especially the elimination of the tax-rate discrimination against what you call "labor" income, and the attendant special favor of low taxes for invested capital income. That would include all the hedge fund guys who pocket gigantic "carried-interest" profits as capital gains or dividends, taxed at a maximum of 15%. That law reeks of 1% privilege in our tax system.

I became aware of the unfairness of that wealthy-favoring gap when I realized how differently the IRS taxes my pension (at full rate) and my investment income (at 15% no matter how much of it there might be). It's so unfair. And, of course, it's unfair to all people who actually work for their income, and all people at the bottom of our economic system.

So are the rate cliffs you mention, although they're not so bad: only the income beyond the cliff mark is taxed at the higher rate, so it could just be a few dollars that are so taxed, not your full income.

We need solid suggestions like yours. And we need to stop criticizing Hillary Clinton for being the sort of candidate who actually listens to economics experts in developing her "policy-wonk" campaign positions. I mean, hit her for requiring that we think about solutions and their consequences? Horrors!

Ducks or Nightingales?

"...two economic physicians, Dr. Trump and Dr. Clinton..."

I'm still looking for a professionally trained classical homeopath.

Goals

1. I do agree that a rising river lifts all boats, and a rising GDP should increase the incomes of many. The challenge is that what we really want to do is increase the disposable income of Americans. Therefore it is critical to control cost increases while increasing GDP. Be they amount of taxes paid, inflation, other.

2. I guess I disagree... I think what we want is people correctly compensated based on their knowledge, capabilities, effort, personal decisions, investment, etc. The USA is not a collective where everyone deserves a share for just living on US soil. The compensation must be competitive with the global markets, or money / jobs will flow elsewhere.

If a person saves money, invests it overseas, makes a profit, etc... Do the people living in America really deserve a large share? Same for someone working Overseas?

3. The tax code is used for more than just collecting money as you note. You want to use it strongly to drive some kind of equitable income distribution. Where as I think it should also be used to strongly encourage citizens to save for college, rainy days, retirement, reduce debt load, etc I don't see that in your plan.

Remember that the Great Recession was only a problem for people with too much debt and too little liquidity...

Only a Problem for a Few Unworthies

"Remember that the Great Recession was only a problem for people with too much debt and too little liquidity..." Unless, that is, you happened to be working in an industry that was hit by the recession. I'm sure there were any number of, say, construction workers who had relatively little debt who suffered mightily when the housing market crashed. Of course, that was their fault for not having had jobs that enabled them to save enough for sufficient liquidity to get them through perhaps several years of underemployment.

After all, any negative consequences sustained by individuals in our highly personalized economy is the fault of the person who is hit, right?

Rainy Days

The reality is that there are sunny days, rainy days, beautiful Fall days, frigid Winter days and very stormy days. People who spend their lives in shorts drinking mojitos, and do not invest in an umbrella and coat are bound to get wet and very cold at times.

When they are very cold and wet, is it the weathers fault?

Like the weather, the economy cycles and people should prepare for this. I personally was hoping it may hurt folks a bit more so they would have learned the importance of work, saving, investing, etc. I know the Great Recession did wonders for generation of my Grandparents.

Do you think people learned from their errors?
Or did we bail the economy out too quickly with borrowing?

"People who spend their lives in shorts drinking mojitos"

Or the people who work for low wages in the stores selling those shorts. Or the folks making and serving the mojitos. No need to waste any concern on them, am I right?

"I personally was hoping it may hurt folks a bit more so they would have learned the importance of work, saving, investing, etc." Words fail me. Are people poor because they do not know the value of work? Are the people who don't have the disposable income they need to "save, invest, etc." just to be dismissed because--what, exactly? There are no moralistic lessons to be drawn from their situation?

"Do you think people learned from their errors? Or did we bail the economy out too quickly with borrowing?" Too quickly? For whom? As Harry Hopkins put it, "People don't eat in the long run, they eat every day."

Great Depression

Since my extended families wealth came from the lessons learned during the Great Depression, I beg to disagree. Those folks made little, but they lived on even less. Success in life is about beliefs and choices.

fairness

Your tax suggestions are excellent - but not enough. We also need to regulate capitalism in ways that enable more people to accumulate some wealth. Enough to buy a home and small savings account, for instance. ESOPs, co-ops, etc. can help here. How do we encourage such? (Reich, Alperovitz and others have relevant suggestions.)

And market does not work very well in care taking sector. How do we price these so that the caretakers get adequate pay?

Growth needs to be accomplished in ways that do not increase damage to planet. Possible, but takes thought and careful planning.

Regulate capitalism???

True capitalism regulates itself. If you have a product someone wants and sell it for a profit, you will succeed, if your product doesn't sell, you will not succeed. What would you like to regulate about that? Are you saying if Pizza Parlor 1 makes 3x the money of Pizza Parlor 2 there should be a Federal regulation on that? If you are talking about regulating crony capitalism, good luck. The politicians, that the left want to give more money to, have figured out the system and use it line their pocketbooks. One thing would clean up that huge mess of big business/ big banks marriage with the political class: a flat corporate tax rate with no loopholes. Politicians on both sides of the isle have used the tax laws (plus passed many more) and loopholes to get in bed with big business.

As far as enabling more folks to accumulate wealth, start by making it easier for small businesses to get loans (Dodd/Frank has killed the small bank/credit union sector), lessen the burdensome regulations on small businesses and encourage the engine of our economy to grow (not happening). Bring back teaching the trade skills to High School kids. Lower corporate tax rate to encourage businesses to manufacture here. Use our natural resources (oil, gas, timber, coal and minerals) to create good paying jobs.

There are many simple ways to help folks accumulate wealth, unfortunately for us, many call for the redistribution of wealth through Govt force rather than help folks find work, open businesses and get trained in fields that pay well. I have to wonder if another regulation on capitalism is the answer.

Similar

I had similar thoughts after reading Victoria's comment.

The equitable distribution regardless of capability, investment, effort, etc and the price controls smacked of democratic socialism. And yes almost everyone wants to protect the earth, the problem is that we just disagree regarding what is harmful.

"Dodd/Frank has killed the small bank/credit union sector"

Or not. Low interest rates and technology are hurting small banks just as much, if not more, than Dodd-Frank.

"Bring back teaching the trade skills to High School kids." It's not mandatory, but students can still take shop classes to learn a trade while they are in high school. Of course, finding a job with those skills that pays a living wage is a challenge.

Really

Are you truly of the belief that Plumbers, Electricians, Machinists, Skilled Equipment Operators, etc are not able to find a job that pays a living wage?

No

These skills are not taught in high school. My recollection of the halcyon days of vocational high school education is that these were careers often learned in post-secondary vocational schools, during apprenticeships, or both.

In any event, while there are blue-collar jobs that pay living wages, they are not as widely spread as the ads for vocational schools would have you believe (remember that the numbers put out by the BLS are averages, including neophytes and old hands). The wages of the skilled "yeomanry" have declined in recent decades, just as the demand for workers in many of those occupations is declining. When I was in high school, for example, printing was such an in-demand occupation locally that we (by which I mean, boys) were required to take a semester of printing in school (ask a man of a certain age if he knows to "Be Careful Driving Elephants Into Small Ford Garages") . Now--the printing industry is increasingly automated, and one of the major industries employing workers in the field--the print media--is in a steady decline.

Incidentally, I would note that your examples all seem to refer to workers in heavily unionized occupations. In the non-unionized segments of industry, skilled wages go down, even as workplace injuries and fatalities go up.