A look at the GOP candidates' economic plans
The Pennsylvania primary is a few weeks away, and for the first time in memory, the vote for the presidential candidates may actually be meaningful.
The Pennsylvania primary is a few weeks away, and for the first time in memory, the vote for the presidential candidates may actually be meaningful.
While the remaining hopefuls have separated themselves by personality, the question that concerns me is this: Are there differences in the candidates' economic strategies that voters should be aware of before they enter the voting booth?
In this first of two columns, I will discuss the three Republican candidates' economic proposals. Though Donald Trump and Ted Cruz have posted plans on a variety of issues that are specific enough to generate cost estimates, John Kasich's action plan contains fewer specifics, making it difficult to evaluate.
When it comes to taxes, you can be sure of one thing: Republicans love to propose cutting them and simplifying the code. It's hard to argue with that. But, as usual, the devil is in the details.
Consider personal taxes. Trump wants to truncate the current seven tax brackets into four: 0 percent; 10 percent; 20 percent; and 25 percent. A married couple hits the maximum tax rate at $300,000. As for tax simplification, the details are less clear, but he would eliminate the alternative minimum tax and the estate tax, and would tax carried interest as normal income.
The Cruz approach is even more dramatic: He is proposing a flat 10 percent tax on all income, not just wages, with most deductions and the AMT eliminated. A family of four could earn up to $36,000 before being taxed.
Kasich wants to reduce the brackets from seven to three, with the top rate dropping to 28 percent from 39.6 percent.
As for corporate taxes, all the candidates want to reduce rates dramatically. Trump calls for a 15 percent corporate tax rate, Cruz abolishes the corporate tax and replaces it with a 16 percent value-added-
type tax structure, and Kasich wants a 25 percent rate. Each eliminates many other corporate taxes, though the resultant corporate tax structure is not well-defined.
An interesting, though not publicized, consequence of the changes is that firms with current tax rates below the proposed corporate rate, and there are many, could see their taxes rise.
But there is no such thing as a free tax cut, and reducing taxes has been shown to increase the budget deficit. The Tax Foundation estimates that, using traditional static budgeting models, the Cruz plan would cost the Treasury almost $3.7 trillion over 10 years, while Trump's would burn a nearly $12 trillion hole in the Treasury's pockets.
The Tax Policy Institute thinks the losses will be closer, with the Cruz shortfall hitting $8.7 trillion and Trump's losing $9.5 trillion.
Whichever estimate you use, it's a big number. Kasich's ideas are not specific enough to estimate the impact.
Because all these proposals would leave more money in taxpayers' pockets, especially those in the highest income brackets, it is claimed that significantly more economic growth would be generated. But that happens only if the tax cuts are not offset by spending reductions. Since it is an awful lot easier to cut taxes than spending, budget deficits would likely widen sharply.
As for other economy-related issues, all the Republican candidates would limit immigration, something that even the major business organizations oppose, reform regulations (though we don't know which ones), and repeal the Affordable Care Act (Obamacare). Trump has set out some approaches to replacing Obamacare, but the Cruz and Kasich alternatives are vague and general.
On the trade front, Kasich seems to be largely in favor of free trade. Cruz says he is a free-trader, but he has also opposed some programs that would accelerate trade-
agreement implementation. It is uncertain precisely where he stands. Trump appears to oppose many of the free-trade agreements, though it is unclear how he would replace them other than with tariffs. His approach most worries businesses and economists.
So what should we make of this? When all is said and done, the Republican candidates' economic plans differ mostly in the details. They are unified in their views on tax cuts for both individuals and corporations, eliminating Obamacare, and controlling immigration. They are also united in their lack of specificity on how they will replace Obamacare or keep the budget deficit under control, though all claim they will balance the budget.
The conclusion: When it comes to the economic policies of the Republican candidates, there is little difference.