CREDIT WHERE credit is due: Republican presidential nominee Donald Trump has improved his proposals for fiscal policy. Whereas he previously backed $9.25 trillion in tax cuts over 10 years, with no plausible way to pay for them, last week he offered a revised version that would cost less than half that, $4.4 trillion, with no plausible way to pay for it. In other words, his prescriptions have progressed from preposterous to merely intellectually dishonest; their foreseeable impact on the U.S. economy, from destabilizing to merely dangerous.
Of the tax cuts Mr. Trump proposed, the vast majority would benefit upper-income households and corporations, the latter of which would see their top rate slashed from 35 percent to 15 percent. In truth, it’s difficult to estimate the impact of these proposed changes, because the Trump campaign left it unclear whether the 15 percent top rate would also apply to “pass-through” businesses; these firms pay taxes at individual income rates, which are higher than corporate rates and would remain so (albeit reduced) under Mr. Trump’s plan. If the lower corporate rate applies to pass-throughs as well, the revenue reduction could be even larger.
Mr. Trump says his plan would not blow up the national debt, which he has elsewhere promised to tame, because tax cuts and separate trade and regulatory changes would mostly pay for themselves through rapid growth — 3.5 percent per year, he predicts. Thus, to avoid increasing budget deficits, the government would need to trim only $800 billion in spending, over 10 years. All of those savings would have to come out of non-defense, non-veterans discretionary spending, because Mr. Trump has pledged to increase defense and veterans aid, while leaving Social Security and Medicare — the two biggest drivers of the debt — untouched. This means that Mr. Trump would impose 100 percent of the budget restraint on roughly 15 percent of the budget — the sliver that pays for national parks, law enforcement, research and diplomacy, among other vital functions. (Unclear in all of this is how Mr. Trump would come up with additional billions for an expanded Border Patrol, but we digress.)
This would be profoundly unwise even if politically feasible, which it is not, as recent political trench warfare over the sequestration spending caps shows. Groping for a magical way around those realities, Mr. Trump proposed cutting “one penny of each federal dollar spent on non-defense, and non-entitlement, programs.” As Max Ehrenfreund of The Post’s Wonkblog has pointed out, this seemingly trivial cut would compound by 2026 into a massive 23 percent cut as compared with the current budget trajectory.
The truth is that demographic forces, chiefly the aging of the population, make it highly unlikely that the U.S. economy would grow at 3.5 percent on a sustained basis. Certainly no prudent fiscal steward would bet the budget on it. The actual task before the United States is to speed up growth while legislating a more sustainable balance between revenue and outlays — one that frees resources to provide for new needs, not just existing entitlements, and certainly not to further enrich those who are already well-off. In view of those challenges, Mr. Trump’s wishful proposal would be worse than useless.
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