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Here’s What President Donald Trump Would Do To The Economy

Republican presidential candidate Donald Trump at a press conference Tuesday night CREDIT: AP PHOTO/MARY ALTAFFER
Republican presidential candidate Donald Trump at a press conference Tuesday night CREDIT: AP PHOTO/MARY ALTAFFER

After Ted Cruz dropped out of the Republican presidential race on Tuesday night, leaving just Donald Trump and John Kasich in the race, all signs point to Trump becoming the GOP nominee.

So if he were to win the presidency, what would Trump do to the economy? In short, the outlook is bleak.

Tremendous tax cuts

Early on, Trump released a tax plan that he promised would provide “major tax relief” for the middle class while going after rich people like himself — but it ended up looking like standard conservative fare. He would lower the highest tax bracket from its current level of 39.6 percent to just 25 percent, cut the capital gains rate paid on investments rather than salary income to 20 percent, and get rid of the estate tax that’s paid by the wealthiest 0.2 percent of Americans.

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He did follow through on promises to make hedge fund managers pay by ending the carried interest loophole that allows them to count the income they make at work as investments. But all in all, the rich would make out far better than everyone else under Trump’s plan. Within a decade, the richest 1 percent would capture 40 percent of the benefits of his plan, leaving just 16.4 percent for the bottom three-fifths of the country. That richest slice of America would pay $400,000 less in taxes, while the poorest Americans would see just $209 in relief.

Trump’s tax plan also includes reducing the corporate tax rate to 15 percent, lower than what some of his former running mates were proposing. Trump has promised that the entire tax package will generate economic growth of at least 3 percent a year but as much as 6 percent, “growth that will be tremendous.”

Beyond the fact that the country hasn’t seen growth rates like that in some time, the details of his plan are unlikely to get the country there. Research has not backed up the idea that tax breaks for the rich translate into growth for everyone. In the post-war period, the economy has grown at a faster rate when the top marginal tax rate was higher and lower when rates were lower. Studies have found that Ronald Reagan’s tax cuts didn’t spur growth, nor did George W. Bush’s.

Trump’s plan would, however, cost the economy $9.5 trillion in revenue over 10 years. He’s waffled about whether and how quickly he would seek to balance the budget, but to do so without making any changes to Social Security and Medicare, as he’s promised, would require cutting all other government spending by more than three-quarters. That includes programs that keep people out of poverty, support economic activity, and a huge range of other important initiatives.

Terrifically questionable trade policies

The other big plank of Trump’s economic plan centers on trade. He’s railed against trade deals that he says have been weak and have cost American jobs. The evidence backs up this point: one study found that the U.S. lost about 2 million jobs to trade competition with China between 1999 and 2011, or 10 percent of all job losses in manufacturing. Another found that employment and wages in American communities hit hard by competition with China remained depressed for at least a decade.

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The trick is what Trump would actually do to address this, and whether it would ultimately be helpful or harmful for the economy. He’s promised to levy huge tariffs on imports to supposedly give domestic industries a boost, either targeting specific countries like China or Mexico or individual companies that say they’re going to move jobs overseas. He promises to go after China for manipulating its currency, artificially bringing it lower than the dollar and thereby making its own goods cheaper than ones made here. And he’s promised to toss and renegotiate trade agreements like NAFTA or the Trans Pacific Partnership.

Some economists think these actions, if done the right way, could have a positive impact. Tariffs could be imposed temporarily as a way to bring China to the negotiating table over currency manipulation and other harmful trade policies.

But if Trump were to drop blanket tariffs on an entire country indefinitely, he would be in violation of a number of trade agreements, which could result in sanctions from the World Trade Organization — not to mention potential retaliation from China with tariffs of its own, potentially leading to a trade war. One model built by Moody’s for the Washington Post found that hitting Mexico and China with stiff tariffs would cost somewhere between 3.5 million to 7 million jobs and risk a recession, although there are reasons to think those numbers may be overly inflated.

One thing does seem clear, however: “ripping up” existing trade agreements, something Trump has discussed, would almost certainly mean a trade war and seriously harm the economies of some countries who are party to the agreements.

Huge loss of immigrant workers

Trump has also spent a lot of time railing against immigrants, promising to build a wall along the border with Mexico and deport 11 million undocumented people. While he doesn’t always link this issue to the economy, it could have serious economic ramifications. Mass deportation and blocking immigrants from coming into the country could reduce GDP growth by $1.6 trillion. Immigrants are projected to provide nearly all of the growth in the labor force over the next 40 years. Deporting them, on the other hand, would shrink it by 6.4 percent.

It would also cost a lot to deport immigrants: somewhere between $400 and $600 billion.