Analysis: Trump plan leaves unanswered questions

Brian J. O'Connor
Detroit News Finance Editor

Donald Trump’s first major economic address presented more specific ideas about taxes and trade, along with harsh criticism of his Democratic opponent, even as the former reality TV star left questions about how his plan would work.

Still, the Republican presidential candidate’s speech Monday before the Economic Club of Detroit did give economists a little meat to chew on as they — and voters — consider what would happen under Trumponomics.

The address displayed a more sober Trump, as he stuck to a script built mostly around classic “trickle down” conservative economic approaches for nearly an hour, with few off-hand comments and none of the epic, improvised rage that has characterized his campaign rallies.

Broadly, Trump’s “America First” economic program includes tax cuts for individuals and businesses, major investments in infrastructure, rewriting major global trade agreements, tearing up regulatory and environmental rules and an energy program that would boost coal use and halt U.S. efforts to fight global climate change.

The two newest features are a dramatic swerve from conservative economic orthodoxy: a proposal to exclude child-care costs from taxation and another to end the “carried interest” loophole that gives 15 percent income tax rates to wealthy hedge fund managers.

The New York businessman promised more details of his plan will come later, saying, “In the days ahead, we will provide more details,” and “In the coming weeks, we will be offering more detail” and “I will unveil my plan on this in the coming weeks.”

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Individual tax rates

Trump said his plan would simplify tax brackets, but leave the top rate at 33 percent instead of his previous cap of 25 percent. The lowest tax rate would rise from 10 percent to 12 percent. The current top rate is 39.6 percent.

Trump didn’t explain what would fill subsequent revenue gap, although he later asserted that his easing of energy and regulatory restrictions would promote millions in economic growth and jobs. However, the conservative belief that tax cuts “pay for themselves” by spurring economic growth has been shown to be largely a myth. Instead, some economists say, the tax savings are mostly hoarded by higher-income taxpayers.

On ending the carried interest loophole, even Dean Baker, co-founder of the liberal-leaning Center for Economic and Policy Research in Washington, D.C., praised Trump.

“Carried interest — that is something that’s really hard to defend,” Baker said.

Corporate tax rates

Trump proposes capping corporate taxes at 15 percent, a move he says will discourage U.S. corporations against merging with foreign corporations in what are called tax inversions, and will promote growth and hiring by small businesses at home.

“This is correct,” said Patrick Anderson, CEO of the Anderson Economic Group, a consulting firm based in East Lansing. While many major corporations elude taxes, many small business are structured so that the business income is treated as personal income to the owners.

“There’s a serious problem with the tax code involving American companies,” Anderson added. “Ninety percent-plus of American businesses are owned by the people who work at those businesses, and many of the owners of those business are paying far more than 15 percent in taxes.”

Child care tax deduction

Trump proposed allowing “parents to fully deduct the average cost of child care spending from their taxes.” Unless that is a refundable tax credit — where Treasury will send a check if the deduction reduces a taxpayer’s bill below $0 — it wouldn’t benefit many low-income working parents who already pay little or no federal income tax.

“There doesn’t seem to be a lot there for low-wage earners,” said Mark Hamrick, senior economic analyst for the consumer finance site Bankrate.com. “That would benefit more upper- to middle-income individuals. We would be helping subsidize the nanny industry.”

NAFTA and trade

Trump proposed renegotiating the North American Free Trade Agreement, rejecting the pending Trans-Pacific Partnership, applying trade tariffs and duties and labeling China a currency manipulator.

Economists had mixed reactions, but most doubt effectiveness of such an pugnacious approach to global trade. Many auto jobs moved to Mexico because the nation finally became a reliable, competitive country for production and eliminated its ban on foreign ownership of plants, they said. Ending the average 3 percent tariff on cars and auto parts from Mexico wasn’t a big incentive, either. Even without NAFTA, domestic automakers would’ve relied more on technology and robots in manufacturing and cut high-paying U.S. jobs.

Meanwhile, the major growth in auto markets is likely to occur outside the United States, making it futile to try and turn back the clock to add manufacturing jobs back to the U.S. and Michigan, said Sean McAlinden, chief economist for Ann Arbor’s Center for Automotive Research.

As auto sales peak in the U.S., “sales overseas will outpace our domestic sales — we’re just too mature,” McAlinden said. “If anyone is going to be putting another billion people on wheels it won’t be happening here.”

Because of that, he said, “Detroit’s Big Three automakers really don’t want to have a trade war with the rest of the world.”

What Trump didn’t mention

Lacking was any mention of Social Security and Medicare, student debt, baby boomers leaving the workforce and other gnarly, long-term issues in the American economy. But these long-term entitlement issues are the largest fiscal issue facing the U.S.

“A more creative approach would be trying to attack some of the problem with demographics,” said Hamrick. “In that world, you’d encourage immigration and need to help younger workers succeed. I don’t see anything in this plan that deals with any of those.”