On September 15, Republican presidential candidate Donald Trump spoke at the Economic Club of New York. He went into further depth about his economic plan, should he win the presidency. One of the largest soundbites shared around the web was that he had proposed to grow the economy by 3.5 percent annually for the next ten years -- a growth of this level hasn’t happened since 1930s with Gross National Product, or with the switch to Gross Domestic Product in the 1980s. (Gross National Product and Gross Domestic products are different equations to try and measure the total output of an economy).
His current plan is to accomplish this is through a reduction in the amount of taxes paid out by individuals and corporations. The estimated cost of the tax cuts would be around $4.4 trillion over ten years. Supporters of these types of plans believe that much of these tax cuts would pay for themselves. To those who don’t read into economics often, this kind of comment can sound ludicrous, but as someone who has drank the economics Kool-Aid, there is some reasoning behind it.
To understand the plan, you have to learn about the Laffer Curve. The Laffer Curve is the economic theory that says there is a maximum amount of revenue that a government can generate from taxes. It is based on the concept that as any form of production is taxed the number of people willing to do that activity decreases. Once taxes reach a certain point, the amount of taxes generated by rate increases will be less than the number of producers exiting the market. These exiting producers cause revenue to decrease and the curve to go back down. If this theory holds true, then decreasing the tax rate could increase tax revenue if we are to the right of peak tax revenue, but it could also increase the deficit if we are at peak or to the left of peak tax. It would be difficult to say where the US economy is on the Laffer Curve at this point.
The second part of the plan to cover any revenue shortfall is called the Penny Plan. It is a one percent, year-over-year budget cut to any federal program that is not Medicare, Defense, Social Security or Veterans. Any cuts to these four programs would be political suicide even though they account for 64 percent of the budget. These type of year-over-year untargeted cuts are very similar to the sequester, but on a much smaller scale.
Trump also plans to simplify the tax system by reducing the number of stratums of the tax bracket from 7 to 3 and with people making below a certain threshold being exempt from federal income tax. He is lowering the maximum tax percentage from 39 percent to 25 percent. It also would reduce the capital gains tax from equal to your income tax to five percent below. It would also seek to reduce itemized deductions to close loop holes. President Obama has, in the past, also talked about the need to reduce loop holes. It is clear the tax system needs to be updated, and we need to transition to a more balanced budget.
Regardless of your stance I hope this has informed you for the upcoming election and come November I hope you vote for whoever you believe to be the best candidate.
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