It’s a two-person presidential race now, which means voters will start hearing more about the candidates’ actual proposals—along with attacks on those proposals from the other side. Coming soon: Hillary Clinton’s planned takedown of Donald Trump’s ideas on business and the economy.
Yahoo Finance will be deconstructing the candidates’ campaign promises all the way through November. Here’s a starting primer on five economic ideas from the candidates that would probably do more harm than good.
Trade wars. Republican Donald Trump has attacked free trade as a centerpiece of his campaign, and business leaders are worried. Trump wants to rescind free-trade deals such as NAFTA, slap imports on a wide range of Chinese imports and punish nations such as China, Korea and Japan for keeping their currencies artificially low. The U.S. Chamber of Commerce warns that such policies would cause a recession within a year, and even if that's an overstatement, many economists say new tariffs would raise prices on a wide range of products, causing hardship for typical families. A better way to address concerns about jobs lost to trade might be to build new safety nets for those harmed by globalization and help funnel displaced workers into newer, healthier fields.
Continued class warfare. Hillary Clinton favors fairly traditional soak-the-rich tax reform that would raise taxes on the wealthiest Americans while cutting taxes for middle-class families. Everybody loves a tax cut and most Americans wouldn’t object to higher taxes on millionaires. But it seems likely that at least one Congressional chamber, the House, will remain under Republican control next year, and they’d almost certainly refuse to pass tax hikes of any kind. So Clinton, if president, could waste years pressing for the same kind of tax reform President Obama has failed to get through Congress. With the U.S. economy increasingly desperate for a tax overhaul making the system fairer and more efficient, the next president would do the most good by promptly pursuring some kind of tax reform actually able to get through Congress.
Doing nothing about corporate taxes. This is Part II of America’s tax conundrum. Many other countries have cut corporate tax rates to draw more multinational firms, and it’s working. The US corporate rate is now one of the highest in the developed world, which is a big reason US corporations have $2 trillion in cash parked overseas and keep seeking ways to domicile themselves outside the United States. Trump favors a cut in the corporate tax rate from 35% to 15%, but Clinton hasn’t taken a position on the distortions caused by the gap between US and foreign tax rates. Most economists favor lower US rates along with the elimination of hundreds of loopholes, which would make our tax code less complex and more competitive. In fact, this is one of the few things the government can probably do to directly stimulate the economy.
Killing Obamacare without replacing it. Trump wants to repeal Obamacare and in its place enact two tax breaks: one making health insurance premium payments tax-deductible, and another encouraging expanded use of health-savings accounts. If we were still in the pre-Obamacare era, those policies might make sense. But Trump’s swap would pull the floor out from under the healthcare industry and put many patients in a bind as well. Obamacare has many flaws, but it has also become an elemental part of the healthcare system at this point. Better now to find new ways to lower costs and persuade those stil not covered to get covered, than to scrap Obamacare and start over.
Trash-talking America. Some economists worry that hostile campaign rhetoric alone could depress confidence and hurt the economy. “Our biggest concern is that the rhetoric does not cool down and investors start to worry about big tail risks to growth,” Bank of America Merrill Lynch wrote in a recent report. Markets quiver most at proposals that would upset the status quo with unproven new policies, such as Trump’s preferred tariffs. Much of Trump’s proposals, in fact, aim to replace existing programs with new ones he feels would be better. Clinton, by contrast, is more conventional—but that brings the risk of defending an establishment many Americans feel is failing them. So she, too, may feel the need to propose a few bombshells.
The good news about dramatic campaign proposals is they often go far beyond what may be possible in the real world of rough-elbow politics, and maybe even go beyond what the candidates themselves actually favor. So wild campaign ideas might evolve into nothing more than stalled legislation. Presidents tend to get less done once they're actually in office than they say they'll do while campaigning for it.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.
