Above Photo: by Ninian Reid | CC BY 2.0
Note: Dean Baker looks for the silver lining in Donald Trump’s economic plans. We’re pleased to see taxes decline among working people but decry tax cuts for the wealthy. We urge a very different direction than Trump. Trump’s proposals will expand the wealth divide, which is a key cause of many of the problems faced in the United States. We urge more tax brackets and a much more progressive tax system. Why should someone earning one million, ten million or a hundred million dollars each year be taxed at the same rate as someone earning $500,000 annually? For the very high tax brackets a tax rate of 85% or so would be appropriate.
Spending on infrastructure is an urgent need. But, the details matter. Yes, infrastructure spending will create jobs but will it be designed as a public good or a gift for private benefit of corporations? Will it be designed to move the US off of carbon and nuclear energy to clean, sustainable energy? As far as paying for it, we look for the day when the government takes back its constitutional power to create money and does not go into debt to pay for necessary projects. We can create our own money which would be debt free. Why do we go into debt by paying banks to do something we could do for ourselves?
Finally, Trump populism during the campaign does not seem to include economic populism in his government. According to Politico “Trump is considering Former Goldman Sachs banker Steven Mnuchin has been seen at Trump Tower amid rumors that he’s the leading candidate for Treasury secretary. Billionaire investor Wilbur Ross appears headed to the Commerce Department. Steve Bannon, another Goldman alum, will work steps from the Oval Office. JPMorgan Chase CEO Jamie Dimon remains a possibility as Treasury secretary and will serve as an outside adviser if he doesn’t get the job.” We will see who he ends up picking but it sounds like a continuation of Wall Street ruling the US economy for the benefits of the oligarchs and not the people.
KZ
Trump’s Infrastructure Spending and Tax Cuts for Working People Make Sense
It looks like we will have to get used to the idea of Donald Trump being president for the next four years. In his campaign he pushed many outlandish proposals, like banning Muslim immigrants and deporting 11 million immigrants without documentation. We will have to do whatever we can to block such flagrantly inhumane measures.
There are many other items on his campaign agenda and that of the Republican leadership that will have to be resisted, but at least one part of his agenda could actually offer real gains. Trump has proposed large infrastructure spending and also tax cuts that will hugely increase the deficit. Both offer real benefits, although with substantial risks.
The infrastructure story is straightforward. Roads and bridges in many parts of the country are badly in need of repair. This is both an economic waste, as people needlessly get caught in traffic, and a health hazard when bad roads increase the risk of accidents. Ideally, infrastructure spending would also go to repair schools and improve water systems so that we don’t have more Flints with people drinking lead in their water. It would be great if some of this funding also went to mass transit and clean energy to reduce greenhouse gas emissions, but that might be expecting too much from a Trump administration.
The infrastructure spending would also create jobs. Public construction has traditionally been a source of relatively good paying jobs for men without college degrees. In recent years, the construction workforce has been disproportionately Hispanic. Spending in this area benefits a segment of the labor market that badly needs help. Of course the benefits are considerably less if projects are privatized, as Trump has suggested, and this will have to be part of the battle.
The other useful part of Trump’s agenda is that he clearly does not care about budget deficits. His tax cuts could add more than $400 billion, more than 2.0 percent of GDP, to the annual deficit. These tax cuts are not a good use of money. They will overwhelmingly go to the rich who have been the main beneficiaries of economic growth over the last four decades.
In addition to not needing the money, if the point is to boost demand, giving tax breaks to the rich is the worst way to do it. If a poor or middle class person gets $1,000 from the government they are likely to spend most or all of it. But if we give another $1,000 or even $1,000,000 to Bill Gates it is unlikely to affect his consumption at all.
Even though the bulk of the Trump’s proposed tax cuts do go to the rich, there are still substantial cuts for the middle class, which will provide a real boost to consumption. This boost to consumption, along with the increased demand from his infrastructure spending, will mean a large increase in demand in the economy. The result will be more jobs and a reduction in unemployment.
The strengthening of the labor market will also leave workers better situated to get pay increases. The only time in the last four decades when workers at the middle and bottom of the wage distribution saw sustained gains in real wages was the tight labor market of the late 1990s.
The irony in this story is that it might take a Republican president to give us a tight enough labor market for workers to get their share of the benefits of growth. This is partly due to Democrats having come to idealize the virtues of balanced budgets. Many have wrongly concluded that the prosperity of the 1990s was due to the budget surpluses of the time, which were in fact the outcome rather than the cause of strong growth. In her campaign, Clinton repeatedly promised that her spending plans would not increase the deficit.
However the bigger obstacle to larger deficits under a Democratic president is the Republican Congress. The Republicans routinely screamed bloody murder over any effort by President Obama to stimulate the economy with larger deficits. Several times they have balked at raising the debt ceiling, arguing that this routine maintenance measure was somehow a threat to our children’s well-being. In fact, the burden posed by servicing the debt, at 0.8 percent of GDP, is near a post-war low.
But Congressional Republicans will no longer care about deficits with President Trump in the White House. This means that he will be able to run deficits large enough to get the economy to full employment and quite possibly beyond.
We may once again see issues with inflation and a need for higher interest rates to slow the economy. That will have some negative effects, but at least it will put an end to the long period of high unemployment and secular stagnation. This will be a good thing; it’s just unfortunate that we needed a Trump administration to get there.