WASHINGTON, September 14, 2015 – Donald Trump is the top Republican candidate for President. He has put forth a number of points concerning his economic plan. Some of his ideas make sense and are consistent with Republican principles while other points are way off base and completely unrealistic.
Let’s examine what Trump has in mind, some of which may be discussed in this week’s debate.
While he generally favors smaller government and lower taxes, the specifics of his plan may reveal some inconsistent and counter-productive proposals. His tax plan makes sense in most areas, but when he deals with foreign trade and compensation for top executives, especially hedge fund managers, his plan seems to be more style than substance.
On the positive side Trump wants to reduce taxes for all Americans, which makes sense to everyone. He has suggested four tax brackets with rates of 1%, 5%, 10% and 15%. While many Republicans favor a simplified version with just one rate of 15% on all income above a livable minimum, adding the progressiveness may be politically more feasible than simply a flat rate. His plan will likely be viewed favorably by most in the Republican Party and may even have appeal to independents and some Democrats, depending on the income levels where each rate is used.
Trump is also in favor of keeping the minimum wage at current levels with perhaps having two rates, one for teenagers and another for working adults. This approach has been tried before and it was successful. President Reagan relaxed the minimum wage for teenagers mostly seeking summer employment. The result was a large increase in the number of jobs available to teenagers.
Trump also favors reduced government spending and less regulation of business so that expansion is encouraged rather than discouraged which has been the case for the last six years or so. He wants to eliminate inheritance taxes and reduce the capital gains tax. These are consistent with the principles of the Republican Party.
But then Trump wanders into areas where his policies are counter-productive and inconsistent with Republican principles.
He wants to raise the tax rates above his original 15% top bracket for highly paid corporate CEO’s and hedge fund managers. He wants to put taxes on imported goods and tax companies that outsource their manufacturing. He says that he will be a tough negotiator so our manufacturing jobs will stay in the US instead of going to China and India. He is way off base here.
Regarding the CEO’s, he notes that some earn more than 300 times what the average employee in the company earns. He claims this is not fair. Trump, along with the Democratic Party, wants to cap CEO salaries.
This is not a good idea.
Suppose in a company the average employee earns $60,000 per year. If the CEO earns $18 million per year (300 times the average) Trump claims he is overpaid. The reality is that these CEO’s are the top managers for companies that earn billions per year.
If the corporation has a profit of $10 billion per year, the CEO’s $18 million salary is less than two tenths of one percent of the total profit. Any owner of any corporation would certainly be willing to pay a CEO $18 million if he made decisions that resulted in a $10 billion profit. Wouldn’t you? In fact if there is a person available who wants $30 million per year, but can increase corporate profits to $12 billion, the shareholders would gladly hire her, even though her salary is 500 times larger than the average employee.
He is also wrong about bringing jobs back from China by taxing imports and taxing companies that outsource. The reality is that manufacturing jobs leave the country because it is far less expensive to manufacture in China or India. The $600 cell phone in your pocket would cost $1,800 if the assembly and the components of the phone were all made in the US.
The economy needs to produce tomorrow’s jobs not yesterday’s jobs.
He also wants to raise taxes on hedge fund managers. This is likely because he resents them for earning as much or more than he earns for the development of a project. When Trump purchased the Taj Mahal casino in Atlantic City for $1 billion, he used about $100 million of his own money and then asked the hedge fund managers and other Wall Street executives to find financing for the remaining $900 million.
Although this was extremely difficult and Wall Street had to sell “junk bonds” to finance Trump’s purchase, they came through for him and charged him accordingly. In the end they made more money than he did and he likely resents them for that.
While most of Trump’s economic plans do make sense, some parts are a reflection of his distaste for others rather than being based on sound economic principles. Overall though, he seems to have the right idea.