How Donald Trump's New Economic Plan Could Help You (or Not)
What benefits would Donald Trump's economic plan, which he presented in Detroit on Monday, bring you? And what wouldn't it?
The Republican presidential nominee presented his ideas to fervent supporters, as well as to a loud chorus of protesters. For those who think that economic addresses are dull, don’t worry: Trump was not bogged down in dull policy proposals.
The address followed the general template of Trump’s GOP convention speech, his most successful scripted address to date. There were rough outlines on tax and child-care policies, a bit on business taxes, and lots — lots — on how the U.S. was taken advantage of in foreign trade deals. So just what does a Trump presidency promise for your wallet?
• Taxes. Criticized for having the most expensive tax plan among the Republican candidates, Trump has been promising a new plan for two months. In Detroit he finally got around to it, proposing a plan with three income tax rates: 12%, 25%, and 33%. Those rates aren’t accidental. You can summarize the thinking behind them in four words: the Paul Ryan plan.
It’s not clear if the income cut-offs would be the same as the proposal by House Speaker Ryan (R-Wisc.). If they are, then the plan is cheaper to implement than Trump’s original version. Unfortunately, it also doesn’t offer much of a cut for the upper middle class. If, say, you’re a married couple with incomes in the $75,000 to $150,000 a year range, there’s no cut for you.
• Child care and education. This was a much-anticipated part of the economic plan, but details here are vague. Vague enough that Trump himself said as much, noting that his daughter, Ivanka, was still working on them. One explicit part was that Trump would let parents “fully deduct average child care expenses.” Critics were ready to pounce on this, with economist Justin Wolfers tweeting that creating a tax deduction rather than a credit “effectively excludes all poor families.”
It would exclude plenty of upper middle class families, too, since a great number don’t itemize deductions on their taxes. For those in upper tax brackets, a child care deduction would be a huge boon, potentially making close to $12,000 per child tax deductible, and saving $6,000 a year or more for a family with two young children. This is a dramatically different approach than Hillary Clinton’s, which in many cases would have government pay most of the cost of child care. Worth noting: Trump’s plan is not fully developed and it won’t be a surprise if down the line the tax deduction turns into a credit, making more families eligible.
• Trade deals. Trump promised to expand U.S. trade pacts by signing agreements with ... kidding! You know where this went. Yes, Donald Trump plans to kill the Trans-Pacific Partnership, the infamous agreement with Japan and Vietnam (and, less well-known, Canada, Australia, and New Zealand). Walking away from TPP is certainly possible.
Trump also promises to walk away from NAFTA, the North American Free Trade Agreement, if the U.S. doesn’t get a better deal. It’s not clear just what “renegotiating” NAFTA means. Clinton has made a similar promise — as did Barack Obama before her, as far back as the 2008 election. Just what parts should be renegotiated? Most opponents have in mind imposing labor and environmental rules on Mexican factories. It’s a little hard to imagine doing that while also imposing, as Trump promised, a moratorium on similar regulations in the U.S.
And while you’re thinking about the Trump promises ... It’s worth asking about some of the data behind them.. The Detroit speech was something of a showpiece for Trump’s policy chops. Trump gets most fired up talking about how the U.S. is getting ripped off (as well as its need for more law and order), but this speech was chock full of economic factoids.
Some of those could use a lot more context. For instance, tax rates. Trump said in Detroit that the average U.S. taxpayer pays 31.5% in federal income taxes. You need to go through a lot of contortions to get to that number (it comes from the Tax Foundation think tank), including counting the employer’s share of Social Security tax and assuming that everyone pays taxes at the single-filer's rate. In addition, the 31.5% includes state and local income taxes (Trump tossed in another 10% for those). Other analyses, like the one from the Peter G. Petersen Foundation, get to numbers well under 20%.
Another example: trade with Mexico. Yes, the U.S. trade deficit with Mexico has risen to about $60 billion a year since NAFTA took effect in 1994. Trump did cite that accurately. But keep in mind that, since NAFTA went into effect, U.S. exports to Mexico have risen from $42 billion to close to $236 billion. That’s close to $200 billion worth of U.S. goods and services that Mexico is now buying, and we don't want Trump's wall to stop them.