At Thursday's Republican debate, Donald Trump faced a rare question about the economic consequences of his policy proposals. How would he balance the books, given the massive tax cuts he has put forward?
Trump closed his eyes and smiled. “We will do my tax plan, and it will be great,” he said. “We will have a dynamic economy again.”
As the presidential primary season has progressed, the once-remote possibility that Americans might be saying “President Trump” in 2017 has become increasingly plausible. As the real estate mogul’s standing in delegate counts has grown, so too has attention on his economic plans. Would a Trump presidency make the U.S. economy great again?
Economists doubt it.
“Donald Trump is promising more than he can deliver,” said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget. “It would just be unachievable.”
The nonpartisan group has calculated that Trump’s proposals would cost as much as $15 trillion over the next decade, bringing the debt-to-GDP ratio from an estimated 86 percent in 2026 under current government policies to between 115 percent and 140 percent.
Trump’s pricey economic platform rests on three pillars: immigration reform, tax cuts and trade reform. On each point, he has made characteristically grand promises, from bringing China to heel to deporting 11 million undocumented immigrants. The proposals tend toward conservatism but cover all sides of the ideological spectrum.
Though it’s hard to predict the consequences of "Trumponomics," researchers have studied the broader outlines. The main takeaway: The costs would be huge.
According to Robert Bixby of the Concord Coalition, a government budget watchdog, it’s all but impossible to square Trump’s promises with economic realities. “I can’t fathom any credible way that it can add up,” he said.
The Tax Policy Center estimated that to pay for the tax cuts, Trump would need to cut around two-thirds of discretionary spending, a particularly tough feat after he promised not to touch the big-dollar outlays of Medicare and Social Security. CNN debate moderator Wolf Blitzer challenged Trump on that point in Thursday night's debate.
Trump responded that he would abolish the Education Department as well as the Environmental Protection Agency. When Blitzer responded that those two items added up to just $76 billion, one-seventh of the annual budget deficit, Trump scoffed.
“We will cut so much, your head will spin,” he said.
Here's a deeper look at the three main tenets of Trumponomics.
1. Tax Policy
Trump’s economic program centers on a raft of big tax cuts. Most individuals would see their rates fall, with the greatest gains for the wealthy. The standard deduction would be quadrupled, and top individual rates would fall from nearly 40 percent to 25 percent.
Trump would cut top corporate taxes from 35 percent to 15 percent while eliminating various tax credits and forcing companies to pony up revenue for currently untaxed cash held abroad.
“It’s a huge tax cut,” said Roberton Williams of the Tax Policy Center. According to the group, a joint project of the liberal Urban Institute and the Brookings Institution, Trump’s tax plan would cost $9.5 trillion over the next decade. The left-leaning Center for Tax Justice has put the total at $12 trillion.
“There will be people in the upper echelons that won't be thrilled with this,” Trump said, unveiling the plan. But even with most individuals pocketing extra cash, the cuts would accrue disproportionately to the highest earners.
The poorest 20 percent of Americans would save $128 a year, giving them a 1 percent bump in after-tax pay. The top 1 percent of taxpayers, meanwhile, would pay $275,000 less to Uncle Sam every year, boosting their after-tax income by 17.5 percent, according to the Tax Policy Center.
“It’s a very regressive tax cut,” Williams said.
Although Trump has spotlighted the proposals in his plan that would reduce corporations’ incentives to keep cash stashed abroad, the reduction in overall corporate taxes he has proposed would likely outweigh the revenue from taxed overseas profits. Similarly, the elimination of loopholes currently utilized by hedge funds and private equity firms, such as the carried interest tax treatment, would be canceled out by reduced top corporate tax rates.
Trump has said, however, that his tax cuts would pay for themselves. “The country will become a dynamic economy,” he has assured, implying that renewed economic growth would increase overall tax receipts.
But even the right-leaning Tax Foundation has dismissed that notion. With generous growth projections following stimulative tax cuts, the nonprofit found Trump’s policies would still leave a $10 trillion hole in the economy after 10 years.
“The more you reduce tax rates, the less bang you get for your buck in economic growth,” Goldwein said. “As his plan stands right now, there is no plausible amount of growth that can make it pay for itself.”
Another key plank of Trump’s economic plan: illegal immigration. Undocumented immigrants from Mexico and elsewhere — whom Trump has cast as “rapists” and threats to public safety — would be rounded up and deported.
Trump’s published immigration plan blames immigrants in particular for stagnating wages. “The influx of foreign workers holds down salaries, keeps unemployment high and makes it difficult for poor and working-class Americans — including immigrants themselves and their children — to earn a middle-class wage,” he said.
But decades of research have found minimal impacts from immigration on wages. In a 2007 review of two decades of immigration studies, University of California-Berkeley economist David Card found “a small but discernable negative effect on the relative wages of low-skilled native workers.” And that slight depression in wages was canceled out by wages that were “a little higher, on average” in cities with many immigrants.
In sum, Card wrote in 2012, “the impacts of immigration on native workers in the United States … have been very small.”
Whether or not American workers would benefit, however, Trump’s proposals would cost the government a pretty penny. The right-leaning American Action Forum has estimated that it would cost between $400 billion and $600 billion to secure the border and deport the 11.2 million undocumented immigrants living in the U.S.
The costs to the American economy would be much greater. Immigrants are projected to provide nearly all the growth in the American labor force over the next 40 years. The loss of so many workers would depress the gross domestic product by $1.2 trillion.
“It will harm the U.S. economy,” Douglas Holtz-Eakin, president of the American Action Forum, told The Street. “Immigration is an enormous source of economic vitality.”
The fiscal impacts of Trump’s plan to make the Mexican government pay for a 2,000-mile wall at the border have yet to be formally evaluated, but Mexican officials have laughed off the suggestion. As former Mexican President Vicente Fox said Thursday, “I’m not gonna pay for that f------ wall.”
3. Trade and China
Finally there’s China, the white whale of Trump’s economic vision. “What they've done to us is the greatest single theft in the history of the world,” Trump said after winning the South Carolina primary. “They've taken our jobs; they've taken our money. They've taken everything.”
By keeping its currency artificially low, skirting labor and environmental standards, and stealing intellectual property, Trump argues, China has wrenched away millions of American jobs, eroding the American middle class. Trump has promised to return those lost jobs.
These appeals have been some of Trump’s most effective in the heartland of America. When the AFL-CIO canvassed the Rust Belt cities of Cleveland and Pittsburgh, the researchers found that Republicans and some Democrats in the traditional labor strongholds were drifting toward the golden-haired Manhattan real estate icon. The key factor? Economic insecurity.
“It’s the first time within the Republican field that someone has reached out with an economic message that resonates with these voters,” said Robert E. Scott of the left-leaning Economic Policy Institute. At times, Scott said, that means scapegoating immigrants and foreigners. “But frankly, some of those issues are related to trade and the insecurities of the working class,” Scott said.
Recently published studies have found that as many as 2 million American manufacturing jobs have been lost to China since 2000. “Growing trade deficits are the single largest cause of the elimination of jobs in the U.S. manufacturing sector, and the No. 1 culprit is China,” Scott said. In the past two decades, the trade deficit with China has increased more than tenfold.
Trump has proposed a raft of measures to win them back, from declaring China a currency manipulator and imposing tariffs to challenging intellectual property violations and bolstering the U.S. military presence in the seas around China.
Military conquest falls outside of economists’ purview. But as far as currency manipulation is concerned, most authorities actually consider the Chinese yuan to be not undervalued, but overvalued. Last year the U.S. Treasury stopped referring to the yuan as “significantly undervalued,” and the International Monetary Fund recently congratulated China for letting its currency rise.
In real effective exchange rates, which factor in inflation, the yuan has appreciated more than 50 percent since 2005, according to the Bank for International Settlements.
“In every respect, the situation is the inverse of what it was 10 years ago,” said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics. If China allowed its currency to be driven by the market, Lardy said, the yuan could fall by at least 10 percent. “They’re intervening to keep it from depreciating dramatically.”
Trump’s promises around intellectual property and labor conditions could benefit American industry, but the enforcement mechanisms remain murky. Estimates of the revenue lost to Chinese intellectual property infringement range from to $14 billion to $150 billion annually. But the cost of getting China to the bargaining table is unknown.
Trump has not yet enumerated what kind of tariffs he’d place on Chinese and Mexican imports, but most mainstream economists see trade barriers as imposing aggregate economic blows rather than benefits. “In the long-term sweep, economies have to adjust in order to be successful,” said Lardy.
Of course, the benefits of free trade aren’t evenly shared. “Obviously, if you were in the textile or footwear industry in the U.S., some of those people have lost out,” Lardy said.