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What do the candidates have planned for the economy?

Trump and clinton outline their economic proposals
Posted at 6:51 AM, Aug 18, 2016
and last updated 2016-08-18 06:54:20-04

Finally, Something Meaningful to Talk About

All too often, political campaigns seem to highlight tangents over substance. In 2016, that trend has been amplified. We are faced with increasingly self-destructive behavior by Donald Trump and, in Hillary Clinton, a candidate so dogged by baggage and poor favorability ratings that she cannot take full advantage of the Donald's missteps.

Isn't it nice to have something more substantial to talk about than which candidate is least fit to hold the Presidency? We think so, and in the past week both Donald Trump and Hillary Clinton obliged by outlining their economic proposals. There are significant differences (along with a surprising number of similarities) to consider.

Personal Taxes: Battles At the Top

Under a Trump administration, the tax brackets would be compressed to three levels: 12%, 25%, and 33% (down from 39.5% at the top). In contrast, Clinton has outlined a 4% surcharge on income over $5 million (raising the effective tax rate at that stratum to almost 44% — after eligible deductions, of course). But she doesn't stop there. To limit the impact of far lower capital gains taxes, Clinton has proposed that Americans with incomes over $1 million pay a minimum of 30% in income taxes.

Both Clinton and Trump advocate closing the carried-interest loophole. Trump also plans to remove the estate tax — arguably a case of double taxation, but only applicable to those with estates of $5.4 million ($10.9 million for couples).

In short, the tax battle is in the upper tiers of income. If you are in the lower or middle class, your taxes are not likely to change much — a 0.5% raise in after-tax income at best under the Trump plan according to the Tax Foundation, and virtually no change under the Clinton plan according to the Tax Policy Center.

Corporate Taxes: Keeping Businesses in America

Trump proposes to reduce the corporate tax rate to 15% from the current nominal rate of 35%, claiming that it will make America more attractive for business investment. That may indeed coax businesses to stay in America — instead of seeking relief through inversions — although the average corporate tax today is just 18.1%, due to massive write-offs and loopholes in the tax code. Clinton's more-punitive approach is to apply an "exit tax" to those seeking tax relief overseas.

Under Trump, pass-through income — paid by LLCs and other partnerships — would also be taxed at a 15% rate — a particularly useful tool for small businesses.

Regulations: Contrasting Approaches

In this arena, the candidate's positions follow traditional party lines. Trump intends to apply a regulatory moratorium and trim federal regulations in multiple arenas, claiming that they are stifling business growth. Clinton agrees with fewer regulations for small businesses, although it isn't clear exactly what regulations either candidate will eliminate. Despite Trump's claims that Ms. Clinton is "owned" by Wall Street interests, Clinton has in fact called for tighter regulation of the financial industry to "never permit Wall Street to wreck Main Street again," in reference to the 2007 economic meltdown.

Infrastructure: Build It and Jobs Will Come

Both candidates want to spend on infrastructure, with Clinton targeting $275 billion in infrastructure spending and Trump topping her with $500 billion. Clinton's approach is to finance major projects through a government-infrastructure bank, while Trump has spoken of infrastructure bonds.

Trump has correctly assessed that with interest rates so low, it is an excellent time to borrow for projects to deal with our crumbling infrastructure. Massive spending of this nature should also provide jobs and overall economic stimulus — but only in the short and intermediate term, and at government expense.

Trade: Poor, Poor, TPP

For the moment, Clinton and Trump stand on the same side of trade issues. Both oppose the Trans-Pacific Partnership (TPP) agreement negotiated by the Obama administration, although Clinton is on record as having favored TPP in the past — in 2012, she referred to it as "the gold standard" with respect to trade deals.

Both claim that they are for trade, but that our current trade deals are inadequate. Clinton claims that she will stop a trade deal that "kills jobs or holds down wages." Trump is more hardline, claiming he will renegotiate NAFTA and will "withdraw from the deal" unless the terms are to his liking. Trump also intends to label China a currency manipulator and bring cases against China with the WTO. Both the Republican and Democratic standard-bearers have threatened the use of tariffs, although Trump appears to be wielding a machete in this regard, while Clinton prefers a scalpel.

Childcare: It's All About the Kids

Both candidates are proposing relief for childcare expenses, but their approaches are significantly different. Clinton is proposing an expansion of the Child Tax Credit (up to 10% of income) while Trump plans to allow families to deduct average childcare costs from taxes. Since credits subtract directly from tax bills while deductions are targeted to those who itemize, Trump's plan assists wealthier families while Clinton's targets poorer ones.

Trump plans to address lower-income parents via partial payroll tax exclusion for childcare expenses. Clinton raises the bar by adding paid family and medical leave, at an estimated cost of $300 billion over a decade.

A Higher Minimum Wage... Probably

Hillary Clinton has been reasonably consistent in proposing a higher federal minimum wage, adjusting to $12 per hour minimum over a few years. Donald Trump has held almost every position on this topic at some point throughout the campaign. Currently, he proposes $10 per hour. Stay tuned; it may change a few times before Election Day.

The Takeaway

The common ground in both economic plans: spending. Neither candidate seems to be interested about reining in spending — probably because that's not a popular proposition in an election year. As a result, we have the Trump plan, still short on details and with trillions of dollars of reduced federal revenue ($9.5 trillion over 10 years, says the Tax Policy Center) and the optimistic assumption that growth will make up the difference. Contrast this with the Clinton plan, which pays for spending increases mostly through targeted tax increases on wealthier Americans (bringing in an estimated $1.1 trillion over 10 years).

Aside from the effects of infrastructure spending, it remains to be seen where sustained growth comes from in either scenario. It's hard to see how Trump's protectionist trade policies can spur growth even with corresponding tax cuts. Demand doesn't come out of thin air; consumers have to be able to afford to buy products to spur demand — and wage growth isn't a priority of Trump's. Clinton's stay-the-course policy, with extra burdens on the financial sector, doesn't seem likely to spur growth, either.

Nor is it obvious that either plan will create jobs for those who are in the greatest need. Trump in particular appears to be promising to bring back manufacturing jobs that simply don't exist in their old form within today's world economy.

In the end, these promises may not matter because we are still likely to have a divided Congress — meaning that neither agenda is likely to be implemented in much detail. We now return you to your regularly scheduled program of daily outrageous statements, pseudo-scandals, superfluous arguments, and mud-wrestling campaign tactics.

This article was provided by our partners at moneytips.com.

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Five Fun Financial Facts: Donald Trump

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Five Fun Financial Facts: Hillary Clinton

 

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