Trump details tax cuts to boost US economy

Posted on September 15, 2016

Republican presidential nominee Donald Trump speaks at a campaign event as his daughter Ivanka looks on in Aston, Pennsylvania, U.S., September 13, 2016. REUTERS/Mike Segar©Reuters

Donald Trump on Thursday expanded on his plans for tax cuts to stimulate the US economy and create jobs, relying on faster growth to limit the resulting increase in the budget deficit.

Speaking to the Economic Club of New York, Mr Trump said: “If we lower our taxes, remove destructive regulations . . . unleash the vast treasure of American energy, and negotiate trade deals that put America first, then there is no limit to the number of jobs we can create.”

    His plans, which are scaled back from the more ambitious proposals he set out last year, include a reduction in the federal corporate tax rate from 35 per cent to 15 per cent, and a cut in the top federal income tax rate from 39.6 per cent to 33 per cent.

    Martin Feldstein, a professor at Harvard University who was chief economic adviser to President Ronald Reagan, said Mr Trump “did not have a good answer” to the question of how he would deal with the higher budget deficit resulting from the tax cuts.

    Mr Feldstein, who was in the audience for the speech, added that Mr Trump’s campaign team could point only to their forecasts of additional growth leading to more revenue, and said their own estimates suggested more than $2tn could be added to the national debt over the next decade.

    Mr Trump said his economics team had calculated that his plans, including wide-ranging deregulation, would raise the growth rate of the US economy from 2 per cent to 3.5 per cent, and create 25m additional jobs.

    If that happened, he said, then combined with planned cuts in the 13 per cent of US government spending that does not go to entitlements such as social security or defence, the tax cuts would not increase the deficit.

    Mr Trump also said the US should “establish a national goal of reaching 4 per cent economic growth”. He added: “And my great economists don’t want me to say this, but I think we can do better than that.”

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    Glenn Hubbard, the dean of Columbia Business School who was an adviser to Jeb Bush’s failed campaign for the Republican presidential nomination, said Mr Trump was “directionally” right in stressing the need for stronger economic growth, and in arguing for tax cuts and deregulation.

    “He is asking the question that people want answers to: why can’t we have higher growth?” Mr Hubbard said.

    “I don’t think there is anything in Secretary [Hillary] Clinton’s platform that is pro-growth at all.”

    However, he added that he was “not on the same page” as Mr Trump on trade, thinking it was “much more beneficial” to the US than the candidate suggested.

    Oxford Economics, an advisory firm, estimated this week that if Mr Trump was able to carry out his plans to increase tariffs on imports from countries such as Mexico and China, and to deport more than 11m illegal immigrants, US gross domestic product in five years’ time would be about 5 per cent lower than in its baseline projection.

    Speaking in New York, Mr Trump reiterated a theme that he has been pushing with increasing intensity: his claims that the Federal Reserve is running a politicised monetary policy.

    In the question and answer session after his speech, Mr Trump said the Federal Open Market Committee was “not doing the right job” by holding interest rates down.

    “I think the Fed is being totally controlled politically: they’re not raising rates,” he said.

    “I believe the Fed is very political . . . If it was a political decision or the right decision, they’re going to go with the political decision, every single time.”

    He is asking the question that people want answers to: why can’t we have higher growth

    – Glenn Hubbard, dean of Columbia Business School

    The claims fly in the face of the Fed’s declared independence, and its insistence that it does not take politics into account when setting rates. Asked about similar comments earlier this week, Lael Brainard, a Fed governor, said independence from the executive branch was “absolutely the focus” of monetary deliberations.

    Mr Trump has previously suggested he will not seek to reappoint Janet Yellen as Fed chair when her term comes to an end in early 2018.

    Political attacks on the Fed during a presidential election are not unprecedented. When former Texas governor Rick Perry was running to be Republican candidate in 2011, for example, he called former Fed chair Ben Bernanke’s stimulus programme “treasonous”.

    However, Mr Trump’s words come at a particularly sensitive time given the Fed is next week considering whether to lift short-term rates. Investors are currently betting on a decision to hold rates unchanged on Wednesday.

    Mr Hubbard said it seemed clear to him that differences over interest rates at the FOMC were “disagreements between technocrats”, and not politically motivated, but Mr Trump was “entitled to his opinion”.

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