“It’s the economy, stupid.”
Those are the now famous words of James Carville, a former strategist for President Bill Clinton, during the 1992 election; they narrowed down just how important Americans’ feelings about their economic future were to the outcome of the election.
Once again, with Democratic nominee Hillary Clinton and Republican nominee Donald Trump facing off in the 2016 presidential race, it appears that the economy will be a central debate point of the election.
We’ve broken down the two candidates’ policy proposals for the economy on everything from Wall Street regulation to fiscal policy. Using the campaigns’ official positions as well as statements from the candidates themselves, we look closely at the details, and what economists have said about their potential impact.
Trump’s plan would move all Americans into three tax brackets, down from the current seven. The top bracket for married joint filers making more than $225,000 a year would pay 33%; the $75,000-to-$225,000 bracket would pay 25%; and the under-$75,000 bracket would pay 12%. Right now, people who make under $75,00o pay a 15% rate, while the top bracket — made up of those making $466,950 — pays 39.6%.
Trump would cut the corporate tax rate to 15%. It now sits at 39%, but many companies pay much less in their effective tax rate. The average effective tax rate for S&P 500 companies is 29%, according to research by Goldman Sachs.
According to the Tax Policy Center, Trump’s plan would incentivise investment by businesses and individuals, but the benefits would be offset unless there was a significant decrease in federal spending. Currently, Trump’s plan indicates that he would increase spending.
The total impact of Trump’s tax proposal would decrease GDP growth by 4% over the next 20 years from the baseline scenario of the current tax policies according to the Tax Policy Center report.
Clinton’s plan calls for increasing taxes for people who make over $5 million a year by 4%, in what her campaign calls the “Fair Share Surcharge.” Additionally, Clinton would make it so that people making more than $1 million a year do not pay an effective tax rate (after deductions) under 30%.
For corporations, Clinton plans to prevent “inversions,” in which companies move their headquarters overseas in order to pay a lower rate, and charge an “exit fee” on companies moving their businesses outside the country.
According to the Tax Policy Center, Clinton’s plan would decrease investment from the top earners but would also significantly reduce the federal deficit.
“And the proposals would raise marginal tax rates on labour and capital, thus reducing incentives to work, save, and invest among high-income households,” said the report. “The proposals would increase federal revenues by $1.1 trillion over the next 10 years and would therefore reduce future deficits and slow, somewhat, the accumulation of public debt.”
Clinton has introduced a number of measures to try to produce job growth. In addition to investing in infrastructure and manufacturing, Clinton has emphasised ending “quarterly capitalism,” which focuses on returns to shareholders. Clinton aims to get businesses to focus on labour and capital investment by modifying capital-gains taxes, giving tax credits for long-term investments and new hires, and “shedding a light” on excessive stock buybacks.
“And here’s something that you don’t always hear enough of from Democrats: a big part of our plan will be unleashing the power of the private sector to create more jobs at higher pay,” Clinton said in a speech on August 11. “And that means for us, creating an infrastructure bank to get private funds off the sidelines and complement our private investments.”
Trump does not have a specific plan on creating job growth, but his policy positions are designed to increase jobs in the US. For instance, Trump wants to decrease regulation on energy production to create mining and energy-related jobs, which have been decreasing in recent years.
“We are also going to fully capture America’s tremendous energy capacity,” said Trump in a speech on June 28. “This will create vast profits for our workers and begin reducing our deficit. Hillary Clinton wants to shut down energy production and shut down the mines.”
Also, Trump has said he wants to repeal Obamacare, which he said would save 2 million jobs over the next 10 years. Trump has also stated that his trade polices will lead to more manufacturing and goods-based jobs in America.
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Regulation on Wall Street
Clinton has said that she would strengthen regulation on financial institutions and also crack down on nonfinancial lending from the “show banking” sector. Additionally, Clinton’s plan calls for reducing compensation to executives at financial institutions in the event of fines from regulators.
“While institutions have paid large fines and in some cases admitted guilt, too often it has seemed that the human beings responsible get off with limited consequences — or none at all, even when they have already pocketed the gains,” said Clinton in a speech on July 13. “This is wrong, and on my watch, it will change.”
Trump, on the other hand, has called for a repeal of the Dodd-Frank regulation that grew out of the financial crisis, saying it has prevented banks from lending money to average Americans. Additionally, Trump has called for a “pause in all new regulation” and a review of existing regulation, which would appear to include regulation on Wall Street. Trump has been critical of hedge fund managers, saying they “get away with murder.” But it is unclear what he would do to address the issue. In his economic vision on the campaign website, there is no mention of either Wall Street or Dodd-Frank.
“Dodd-Frank has made it impossible for bankers to function,” said Trump told Reuters in May.“It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”
One of the largest differences between the candidates has been their ideas on global trade.
Trump has been mostly protectionist, saying that existing trade deals have taken manufacturing out of the country while railing against free-trade agreements like the North American Free Trade Agreement (NAFTA) and the proposed Trans-Pacific Partnership (TPP). At one point in the campaign, Trump suggested a 45% tariff on all Chinese imports. While he later went back on the idea, Trump has been adamant in his assertion that China is “sucking us dry.”
“When Donald J. Trump is president, China will be on notice that America is back in the global leadership business and that their days of currency manipulation and cheating are over,” reads the Trump campaign’s website. “We will cut a better deal with China that helps American businesses and workers compete.”
Trump believes that negotiating new deals could be beneficial, and the US could “win” at trade under his presidency.
Meanwhile, Clinton does not have a specific trade plan but has pledged to fight the TPP, a deal she once helped to create. In general, Clinton has shifted from pro free trade to something of a trade sceptic.
“My message to every worker in Michigan and across America is this: I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership,” said Clinton during a speech in Michigan in August. “I oppose it now, I’ll oppose it after the election, and I’ll oppose it as president. As a senator, I fought to defend New York’s manufacturers and steel makers from unfair Chinese trading practices.”
Both candidates have emphasised the importance of investing in American infrastructure and spending federal money on projects. Trump has said that the country needs to rebuild “crumbling” roads and bridges, while Clinton has similarly said that rebuilding infrastructure is key to America’s future.
Clinton’s plan calls for a five-year, $275 billion investment into a variety of projects, including airport modernisation and Wi-Fi accessibility in rural areas.
“So we have to rebuild the infrastructure we have, and we have to build a stronger future together because every community in our country, every single one of them, deserves clean water, clean air, clean energy, and think of the millions of people we can put to work, including some of those laborers right down there in the front,” said Clinton during a speech in California in July.
Trump’s campaign said that he will lead a $1 trillion investment in infrastructure by using tax incentives to spur private investment.
The plan would give private firms an 82% tax break after asking for an initial investment to build revenue-generating infrastructure projects such as toll roads and airports. The Trump campaign said this would require no corresponding tax increases.
What economists say
A number of Wall Street researchers have weighed in on the economic plans of Clinton and Trump. The consensus is that Clinton’s plan would roughly maintain the status quo from President Obama’s tenure.
“Our expectations for a Clinton presidency do not require changing our outlook for growth, policy, earnings, and inflation,” said James Sweeney, chief fixed-income economist at Credit Suisse.
If Clinton is able to follow through on all her stated goals, however, it could put pressure on business investment and keep economic uncertainty high enough to curb some growth.
“How left of center Clinton is once in office will determine the degree to which uncertainty drag diminishes post-election,” wrote Dana Peterson, a North American economist at Citi in a note to clients in August. “Uncertainty could remain elevated or even increase if Clinton pursues the more populist aspects of her campaign platform (e.g. ‘America First’ attitude towards trade, aggressively higher taxes, more intense regulation of the financial sector, leaning too hard on China).”
Economists have taken a more extreme view of Trump’s plans. Most economists have warned that there could be serious negative shocks to the country’s economy under a Trump economic plan.
Kevin Logan, chief US economist at HSBC, said that the implementation of Trump’s trade policies would lower exports and increase the cost of goods in the US, which would be a serious shock to economic growth.
“While tax cuts that were implemented in the first year of a Trump administration might give GDP a short-term boost for a year or so, the combined supply shock from a contraction in the labour force and from the disruption to international trade would likely put the economy into a recession after a year or two,” said Logan in a note to clients.
Both Mark Zandi, chief economist at Moody’s analytics, and William Buiter, chief economist at Citi, agreed that the combined trade shock and increased deficit from the full implementation of Trump’s plans would lead to a recession.
Oxford economists estimated that Trump’s plans would lose the US $1 trillion, and the Wharton School of Business at the University of Pennsylvania said Trump’s immigration plan would cost the US 4 million jobs.
Meanwhile, Larry Kudlow, an economist and commentator for CNBC, has said that Trump’s tax plans would be stimulative for the economy. Kudlow has compared Trump’s tax cuts to those under President John F. Kennedy and President Ronald Reagan, noting that both of those instances led to 5% GDP growth. Kudlow has, however, criticised Trump’s immigration and trade policies.
Both candidates have had a large swath of academic economists come out against them. Nearly 400 economists wrote a letter in the Wall Street Journal claiming that Trump has misled the American public on everything from trying to discredit official unemployment statistics to the decline in manufacturing in America.
“Donald Trump is a dangerous, destructive choice for the country,” said the economists. “He misinforms the electorate, degrades trust in public institutions with conspiracy theories, and promotes willful delusion over engagement with reality.”
On the other hand, 305 economists also wrote a letter in September calling out the failings of Clinton’s plans saying her “outdated policy prescriptions won’t return our economy to the faster growth rates it once enjoyed.”