Trump laid out an economic strategy for the country at a speech yesterday in Detroit.
By Dwyer Gunn
Donald Trump. (Photo: Bill Pugliano/Getty Images)
Yesterday, speaking at the Detroit Economic Club, Donald Trump offered his economic plan for the country’s future. Trump was unusually subdued and on-point for the duration of his hour-long speech—a fact that his campaign hopes will serve as a “reset” in the wake of a string of political controversies.
Describing Hillary Clinton as “the candidate of the past,” Trump promised to increase economic growth (which he said “won’t even be that hard”) through an “America First” policy that he promised would return struggling cities like Detroit to economic dominance.
“The city of Detroit is where our story begins. Detroit was once the economic envy of the world. The people of Detroit helped to power America to its position of global dominance in the 20th century,” Trump said to the assembled crowd. “When we were governed by the America First policy, Detroit was absolutely booming. Engineers, builders, laborers, shippers, and countless others went to work each day, provided for their families and lived out, totally, lived out the American Dream.”
Though much of Trump’s speech was fairly old hat—he reiterated his opposition to the Trans-Pacific Partnership, doubled down on his promises to re-negotiate the North American Free Trade Agreement, and pledged to take a harder line in trade negotiations with China—he did mention several new proposals and tweaks to previous plans. Trump vowed to reduce the number of federal tax income brackets to three (from seven) and to cap the federal income tax rate at 33 percent for the highest earnings, a figure that’s more in the line with Congressional Republicans than his previously proposed rate of 25 percent. Trump also called for a 15 percent ceiling on the corporate tax rate and, in a somewhat unexpected twist, promised to make all child-care expenses tax-deductible. As with previous economic proposals, Trump didn’t provide a detailed plan for how he plans to pay for these tax cuts (or the child care proposal), although he assured the audience that more details would be released in the coming weeks.
Detroit’s pre-1970s economic heyday occurred during a period of time characterized by strong unions, good workplace protections, and active and aggressive government involvement in the economy.
In addition to calls for significant tax cuts, the speech included a lengthy diatribe against government regulation. “[T]he city of Detroit is the living, breathing example of my opponent’s failed economic agenda,” Trump said. “Every policy that has failed this city and so many others is a policy supported by Hillary Clinton. She supports the high taxes and radical regulation that forced jobs out of your community.”
Trump’s assertion that high taxes and “radical regulation” are to blame for Detroit’s ills is a stretch, to say the least. If anything, Detroit’s pre-1970s economic heyday occurred during a period of time characterized by strong unions, good workplace protections, and active and aggressive government involvement in the economy. But the anti-tax, anti-regulation mantra that Trump espoused is classic conservative, supply-side economic doctrine, and it’s not much different than what his opponents were suggesting during the Republican primary. Lowering taxes (especially on higher earners) and liberating entrepreneurs, the theory goes, will prompt business development and investment, which will, in turn, “trickle down” and create higher rates of economic growth, more jobs, and higher wages for everyone.
Diehard proponents of the theory, which was pioneered by economist Art Laffer (an unofficial advisor to Trump), contend that the tax cuts will actually pay for themselves over the long term (i.e. will not result in reduced long-term government revenue), thanks to increased economic growth. It’s an argument that Trump echoed in his speech, saying that “[n]o one will gain more from these proposals than low- and middle-income Americans.”
This is a bold assertion, and a contentious one. Sure, it would be great if tax cuts really did result in enough economic growth to both pay for themselves and “trickle down” to improve the well-being of lower- and middle-income Americans. But while economists continue to debateeven the basic premise that tax cuts spur economic growth, at this point very fewmainstream economistsbelieve that tax cuts for businesses and the wealthy pay for themselves, largely because the tax policy experiments of the last several decades have not borne out the supply-siders assertions.
And if tax cuts lead to reduced government revenue, then they must ultimately be accompanied by either a ballooning federal deficit or cuts to government spending, neither of which will do much to help low- and middle-income Americans in places like Detroit.