By Dr. Anand Kulkarni
With the Super Tuesday primaries in the U.S. all done and dusted, and barring something unusual, it appears that the Presidential front-runners are Donald J. Trump and Hillary Clinton. This fascinating, bewildering, bizarre, and at times downright tawdry primary season will soon give way to the general election.
At this point it is instructive to sit back and objectively look at the policies, claims and counter claims of the front running protagonists, stripping away as far as possible the rhetoric, bombast, and wild exaggerations.
At a glance it appears that the Clinton and Trump policy proposals, to the extent that they are decipherable, especially the latter, are diametrically opposed. In a sense this is true but in other ways it is not. We focus on the economic dimensions of the policies.
America in the world
Both candidates are advocating a protectionist economic sentiment, largely around populist notions of either making or continuing American greatness. The Clinton policy (and there have been shifts over the years) is now to disavow free trade agreements unless they meet two very vague and general benchmark tests. These tests are: to protect American workers, raise wages, and create good jobs at home; and that agreements must strengthen national security (Karnie, 2015). In a dynamic international economic environment, globalisation of capital, labour, goods, and services will inevitably mean job churn. A better approach would be to accept structural change and to put in place policies that will allow for workers to move from declining to growth areas.
If we discount Trump’s idea of building a wall to keep out immigrants from Mexico, for the moment, the rest of his platform is simple. Tariffs of 25% on imported goods from China have been mooted and up to 35% on auto products from Mexico (The Guardian, 2015). This is a very clear case of blatant protectionism, which according to most, will result in hurting American consumers and industries through higher prices. Moreover, it will raise the prospects of retaliatory actions by China and other trading partners. In addition, are the massive difficulties of getting such protectionist policies through Congress not to mention their non-WTO compliance. To top it off, 90% of the decline in manufacturing jobs in the U.S between 2000 and 2010 was associated with productivity gains from mechanisation rather than because of imports (Lincicome, 2016).
Both candidates, more nuanced in the Clinton case, nonetheless very firmly have concerns about China’s economic rise in which a low Yuan (the so called “currency manipulation”), low cost advantages, and rising skills and innovation, are puncturing holes in U.S. industries. While not explicitly surfacing thus far, offshoring of services to India could also arguably be a target for growing protectionist sentiment.
The other area where there is some semblance of commonality is in aspects of tax, and in particular curbing the privileges of the “big end of town”. Both candidates have targeted the practice of corporate inversion (where U.S companies become re-incorporated abroad to take advantage of lower corporate taxes), and an end to, or at least capping of, special corporate privileges. For example, Clinton proposes closing tax loopholes that benefit wealthy taxpayers, placing a tax on high frequency trading by banks, and capping tax deductions at 28%, among other things. Trump, although short on detail does call for “reducing or eliminating corporate loopholes that cater to special interests…” (www.donaldjtrump.com/positions/tax, www.hilaryclinton.com/issues/wallstreet and Williams, 2016).
Despite these similarities, there are key differences between the two camps. Trump proposes a reduction of corporate taxes from 35% (39% when state average taxes are included) to 15% regardless of the size of the firm, and reductions in the number of personal income tax brackets from seven to four (ranging from 0 to 25%). According to Trump, some 75 million households will be removed from the income tax rolls. How this will be paid for is still a mystery despite the optimism from the Trump camp. In the end, with the huge corporate tax reductions that Trump proposes, a little dilution of some of the tax perks for the extremely wealthy should really not cause the big end of town to have too many concerns.
The Clinton camp on the other hand is proposing an additional top end tax rate for people earning more than $5 million annually, higher capital gains taxes for those holding assets for a short period (taxes to decline as the length of holdings increase) and implementation of the “Buffet rule” which establishes a 30% minimum on taxpayers with gross income of more than $1m annually. While staying somewhat silent on corporate tax generally, Clinton does favour targeted tax relief for small businesses and simpler tax filing procedures as well as a 15% tax credit for companies that share profits with workers (Williams, 2016).
On tax, we argue that the Clinton policy scores higher on progressiveness (the tax principle that the greater the capacity to pay the higher the tax burden) and affordability but less so on simplicity, while the Trump position is more simple but not terribly progressive. Its affordability is a massive question mark.
The third area of some commonality is with respect to the safety net. Clinton favours an increase in the minimum wage, while Trump surprisingly calls for a retention of the current safety net. In 2013, he flagged two levels of minimum wages: one for teenagers; and one for adults with families (Long, 2015).
Both advocate a form of publicly provided health care support- Clinton more strongly obviously- building on and expanding Obamacare, while Trump supports Medicare (the national publicly funded insurance scheme for people over 65) and believes that Medicare should negotiate (reduce) prices for medicines with pharmaceutical companies (ABCNews, 2015 and www.hilaryclinton.com/issues/healthcare). Trump overwhelmingly lambasts Obamacare.
However, there ends any semblance of similarity. The yawning gap in our view is in the domain of micro economic policy and reform.
Hillary Clinton has outlined a “College Compact”- the central tenets of which are as follows: free tuition at Community College; refinancing of existing student debt at lower rates of interest; ensuring that no student has to borrow to pay for tuition at public colleges (some contributions are required by individuals and families); and prevention of predatory pricing by Colleges (www.hilaryclinton.com/issues/college 2016).
Interestingly, Clinton’s focus is on the financing of education rather than its outcomes in terms of creating knowledge worker jobs, supporting industries of the future and raising the quality of higher education.
Trump has said next to nothing on higher education other than he will look to be creative in finding new ways of refinancing student debt. His main offering is calling for an end to common core (which details national student standards in numeracy, literacy among other things at each grade) in schools and more local solutions to education challenges at earlier stages of education, and drastic cuts to the National Department of Education (On the issues www.ontheissues.org 2016).
On the environment and infrastructure, again poles apart. The Clinton camp has a comprehensive approach on energy including: 500 million solar panels; cutting energy usage and oil consumption by one third; 30% less emissions on 2005 levels within the next decade; ending tax subsidies on oil and gas; and $60 U.S. billion extra funding in partnership with the States, cities, and rural communities to go beyond federal standards in cutting carbon pollution; and investments in clean energy innovation and manufacturing (www.hilaryclinton.com/issues/climate 2016).
In addition, a $25 U.S. billion Government owned Infrastructure Bank is proposed to provide loans for energy and water investments, and promote greater access to broad band infrastructure (www.hilaryclinton.com/issues/infrastructure 2016).
The main Trump offering is slashing funding for the Environment Protection Authority (On the issues www.ontheissues.org 2016). Clearly, given the U.S.’s lagging performance globally on the environment and climate change, this is an inadequate proposition.
According to Tax Foundation modelling, Clinton’s tax plan will adversely affect the economy during the next decade. U.S. GDP would fall by 1%, wages by 0.8%, business investment would decline by 3% and 311,000 full time equivalent jobs would be lost. (Williams, 2016).
Wait though. Modelling on the overall Trump package shows revenues would decline over ten years by anything between 9-15 trillion dollars! Debt would rise to reach 140% of GDP by 2026. Apart from quarantined areas of funding in the Trump package (Veterans Affairs and Immigration Enforcement, Social Security, Medicare and Defence), this would mean spending cuts of between 61-78% across other Departments. To eliminate the budget deficit would mean more than 10% annual GDP growth- levels that not even China or India have reached in recent times (The Economist, 2016).
In the economic domain both contenders are very light on for the “Vision thing” including about jobs of the future, new industries and technologies. In a related vein, both contenders do not say a great deal (Clinton has a medical research fund) about innovation and research, the bedrock on which American dominance has been founded.
What is lacking is a real overarching narrative for the future such as the Kennedy “New Frontier”, Roosevelt’s “New Deal”, Johnson’s “Great Society” or even Reagan’s remaking of the economic order. Instead we have a grab bag of promises (although more comprehensive and better articulated in the case of Clinton) and populist pronouncements.
Over to you voters of America.
Dr Anand Kulkarni is the Senior Manager Planning and Research RMIT University in Melbourne Australia overseeing planning, analysis and strategic projects for the University. He has previously held Senior Management and Executive roles in the State and Federal Governments of Australia leading large-scale policy development. Anand has particular research interests in the Indian Economy, innovation and industry development. He is also a Fellow at the Centre For Policy Development in Australia and holds Honors, Masters and Ph.D. in Economics
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