As Hillary Clinton and Donald Trump prepare for their final debate, one question looms above all others: What’s the projected 10-year effect of their tax and spending plans on revenues and debt?
Kidding. If past is prologue, fiscal affairs will get short shrift on Wednesday. And that’s a shame, because when it comes to taxes, presidents tend to do what they pledge on the campaign trail.
Ronald Reagan promised voters large tax cuts and delivered them. The economy took off, but so too did the budget deficit, forcing Reagan to accept several tax increases over the next half decade.
Bill Clinton campaigned saying he’d hike taxes on upper earners and, despite Republican predictions that that would kill the recovery, he did so. The new revenues, along with spending discipline and a booming economy, led to that rarest of things: two years of budget surpluses.
Like Reagan, George W. Bush ran on big tax cuts and brought them about. Still, the economy he presided over wasn’t nearly as strong as that of the Clinton years.
Barack Obama pledged to end the Bush tax cuts for upper earners and, after four years, accomplished that. Despite GOP predictions that tax hikes on “job creators” would hurt the recovery (sound familiar?), it kept chugging along. And now, at long last, we’re starting to see some significant income growth.
This election, the two major-party rivals have very different plans.
Clinton calls for an array of tax hikes, some yet to be specified, on top earners, to finance about $1.65 trillion of new spending over the next decade. The Committee for a Responsible Federal Budget, a centrist fiscal watchdog, estimates her plans would boost the national debt by $200 billion over 10 years.
That, however, is a drop in the debt bucket compared to what Donald Trump’s plans would do. Trump has proposed a large tax reduction, most of the benefits of which would go to upper earners. How large? His overall fiscal plans would increase the national debt by $5.3 trillion over the next 10 years, according to CRFB’s analysis. Some perspective: The fiscal year 2017 federal budget will be about $4.15 trillion, while the national debt is about $14 trillion.
That’s hardly the only analysis that predicts Trump’s plans would blow a big hole in federal finances. The Urban-Brookings Tax Policy Center, which leans left, says Trump’s plans would reduce federal revenue by some $6.2 trillion over 10 years. That static-analysis projection isn’t much different from the one arrived at by the right-leaning Tax Foundation, which says Trump’s plans would spell a 10-year revenue loss of $4.4 trillion to $5.9 trillion.
The center’s analysis doesn’t include Trump’s spending cuts, but as director Len Burman notes, given that Trump says he won’t cut entitlements or defense, “it is extremely unlikely he could cut spending by anywhere near as much as he is cutting taxes.”
Yet, despite those projections, Trump’s economic team insists his proposals would actually be revenue neutral when the economic effects are factored in. That’s not what the Tax Foundation concluded: Its dynamic analysis, which estimates those effects, found that Trump’s plan would reduce federal revenues by $2.6 trillion to $3.9 trillion over 10 years.
So how does Team Trump arrive at its hugely optimistic conclusion? Through some hyperdynamic sleights-of-hand. Here’s the biggest: The assertion that Trump will somehow eliminate the trade deficit, which was $531 billion last year; doing so would refocus a half-trillion of economic activity domestically, thereby spurring growth and giving revenues a huge boost.
But that amounts to wishing away one deficit by willing away another.
Talk of your magical thinking. Or, to put it another way: Flimflam alert!
Don’t be fooled by this transparent Trumpery.