Donald Trump's Proposed First 100 Days In Office, Part 2

I was going to continue my post of yesterday analyzing Donald Trump's proposed first one hundred days in office, but it appears as though NPR beat me to the punch, and did a fine job of it.  I do have a few things to add, however, concerning taxation.

With regard to Donald Trump's tax plan, it is clear that the wealthy would enjoy the lion's share of cuts, as they have under Republican administrations since the Reagan days.

Estimates from the Tax Policy Center and the Tax Foundation estimate that the top 1 percent of income households would see their after-tax incomes rise by 10.2 to 13 percent under Trump’s plan, while “middle income” households -- those from the 40th to the 60th percentile -- would see an increase of 1.3 to 1.8 percent. Tax savings at all levels could be higher from economic growth, but the wealthy still see the biggest bump.

How effective will tax cuts, small or large, be, in terms of "making America great again"?  One question to ask is what effect tax cuts will have on the economy.  Many economists argue that there is a "multiplier effect" on GDP as a result of tax cuts or government spending, and that tax cuts and spending are not equal.  If you spend $1 on funding a school, for instance, or alternately, you spent that same dollar on $1 worth of tax cuts, how much will GDP grow?  Mark Zandi of Moody's, back in 2008, put forth these numbers:

Fiscal Bang for the Buck

One-year $ change in real GDP per $ reduction in federal tax revenue or increase in spending

Tax Cuts

Nonrefundable Lump-Sum Tax Rebate 1.02

Refundable Lump-Sum Tax Rebate 1.26

Temporary Tax Cuts

Payroll Tax Holiday 1.29

Across the Board Tax Cut 1.03

Accelerated Depreciation 0.27

Permanent Tax Cuts

Extend Alternative Minimum Tax Patch 0.48

Make Bush Income Tax Cuts Permanent 0.29

Make Dividend and Capital Gains Tax Cuts Permanent 0.37

Cut Corporate Tax Rate 0.30

Spending Increases Extend Unemployment Insurance Benefits 1.64

Temporarily Increase Food Stamps 1.73

Issue General Aid to State Governments 1.36

Increase Infrastructure Spending 1.59

To be clear, the numbers in the list above imply that a dollar spent on capital gains tax cuts will lead to a thirty seven cent increase in GDP, whereas a dollar spent on infrastructure spending will increase the GDP but a dollar and fifty nine cents.

You can dismiss Mark Zandi as a liberal hack if you'd like.  He was criticized by both the Trump and Clinton campaigns in 2016.  Prior to 2008 he was a registered Democrat, but in 2008 he was an advisor to John McCain, so he is not exactly gallivanting about in a Che Guevara t-shirt.

As the chart above makes clear, generally speaking, the economic stimulus effect from a dollar expended on direct spending is greater than a dollar expended on a tax cut.  This is an oversimplification of the matter, of course.

But perhaps Zandi has it wrong?  Keynesian economics has its critics.  Of those, those critics have their critics.

GDP growth and job growth are governed by much more than simple taxation.  If you don't fully grasp macroeconomics and don't have time to study it, perhaps you'd be happier relying on this short article detailing job growth, both private and public sector, under consecutive Presidents who pursued differing economic policies. 

As you can see, the Clinton years have the best job-creation track record; Bill Clinton raised taxes.  Ronald Reagan has a good jobs record.  He cut taxes but spent like the devil on the defense sector, radically increasing the size of the deficit.  Much maligned Jimmy Carter, who was more fiscally conservative than Ronald Reagan was, did fairly well in terms of job creation.  Barack Obama comes in 3rd on the list for private sector job growth, but despite the perception amongst both liberals and conservatives that Barack Obama was a conventional big tax-and-spend liberal, public sector employment actually went down under his watch.  Alleged conservative George W. Bush presided over a net loss in private sector employment, and a considerable increase in public sector employment.  George H.W. Bush did much, much worse than Jimmy Carter in his one term.

As far as Trump's plan goes: if your household is in the 40th to 60th percentile, you're likely earning around $42,000 to $68,000.  A 1.8% tax cut for you would net you between $756 to $1,224.  You could definitely take a vacation for that money, so that's fantastic!  That will pay for more than one month of medical coverage for your family.  If you are hoping that your family's overall income will increase, however, you are possibly better off under an administration that will refrain from issuing huge tax cuts for the rich, and which might even raise your taxes.  As long as your income goes up more than your tax burden does, you come out ahead.

I've gone on long enough.  The point is, it is fair to ask whether tax cuts are an effective tool for generating economic growth and, as such, making America great again.  But I certainly hope they work, because it looks like we're going to get them!

One last thing before we go: Donald Trump pledged to "drain the swamp" of Washington corruption.  I wonder how that will go.  Just because he's associating with people who filled the swamp doesn't necessarily mean he won't be able to drain it.  Right?