Clinton's economic plan: Fiscally responsible and debt neutral
Two weeks ago, I reviewed the Trump plan for economic revival. This week, I evaluate the Clinton plan to grow the economy.
Two weeks ago, I reviewed the Trump plan for economic revival. This week, I evaluate the Clinton plan to grow the economy.
A caveat first: Political proposals are moving targets. Donald Trump's original tax plan was revised significantly after it was shown that it would have added more than $11 trillion to the national debt. Hillary Clinton restructured her plan to account for tax and spending questions raised by opponents. Such plans also rarely survive the legislative process intact. Any analysis should be viewed as indicative of the candidates' ideas, not necessarily what will actually become law.
That said, is the Clinton plan fiscally responsible, and how well would it increase growth, the criteria used to judge the Trump plan? Cutting taxes, spending more, and/or piling up debt to create more jobs may work, but ultimately someone has to pay for it.
The same nonpartisan Committee for a Responsible Federal Budget that estimated the revised Trump plan would increase the national debt about $5.5 trillion over 10 years calculated that the Clinton plan would add $200 billion to the national debt over 10 years. I think it underestimated the "free public tuition" plan by about $100 billion, but that does not fundamentally change the conclusion: The Clinton plan is largely "debt neutral."
Clinton counts on unspecified business-tax revisions to reduce the deficits to zero. Without a way to evaluate them, they were not considered. Employing vague programs to limit spending or raise revenues is a common political ploy. My favorite make-believe proposal is "cutting waste," which Clinton did not employ, but Trump did. If we had cut all the waste elected politicians claimed they would eliminate, we probably would have paid off the entire national debt by now. When you hear proposals like "cutting waste" or "work efficiently," grab your wallet.
Clinton's plan differs from Trump's in critical ways. She would spend more and would not cut taxes for everyone. Instead, she would pay for her programs by raising taxes on those earning more than $250,000, closing tax loopholes, and instituting a minimum tax and surcharges. Most of her new revenue would come from high-income taxpayers, not businesses. Trump would reduce the rates for most households and businesses.
Under the Clinton plan, few low- or middle-income households (those earning under $250,000) would see their taxes raised. Estate and capital-gains tax changes could hit some middle-income families, so it is wrong to say none would be affected. But it is wrong to say middle-income families would pay more. Similarly, the Trump tax plan calls for raising taxes for some lower-income households, but it is wrong to say it would raise lower-income household taxes. Since that is where the money is, most of the Trump tax cuts would go to upper-income households.
With the Clinton plan offsetting additional spending through increases in corporate and high-income personal taxes, can it actually create additional growth and jobs? Yes, but the magnitude is not likely to be the same as cutting taxes and ballooning the debt. That's simple economics.
Moody's Analytics, using plausible growth rates, estimated the Clinton proposals would add 10.4 million jobs, but only about 3.2 million more than current law. That is far short of the 18 million the Trump economists claim they would create.
While Trump's plan seemingly trumps the Clinton plan, that may not be accurate.
First, as noted in my last column, Trump's growth rates are well above anything most economists believe is reasonable. Using realistic growth rates would reduce the Trump job-growth numbers significantly.
Second, the Trump job estimates do not account for his trade policies. If a potential trade war is factored in, a recession occurs and the Trump plan would actually lose more than three million jobs.
So, is one plan better than the other? In the past, fiscal responsibility and budget balancing was the mantra of Republicans. In this crazy, mixed-up election, it is the Democrat who tries to balance the budget while the Republican creates massive debt.
Trump would lower taxes more and increase spending less than Clinton. But the national debt would rise sharply, as do interest costs. His trade plans doom his economic proposals, as they could lead to a recession.
Clinton concentrates on raising taxes for businesses and higher-income households, to pay for significantly more spending on favored programs. The "debt neutral" approach, while fiscally responsible, limits job gains.
There is no such thing as a free lunch, no matter what the candidates say. If you cut taxes and increase spending, deficits widen. If you raise taxes to pay for increased spending, an economic plan's impact will be limited. One thing, though, is unambiguous: In a trade war, everyone loses.
The choice is yours.