Andrew Busch | On March 30, 2016
This
election season has simply been the story in the United States if not the
world. The emergence of billionaire Donald Trump and the presence of Hillary
Clinton are providing the media with great story lines and captivating, if
sometimes crude, sound bites. Sadly, the noise level has grown to such heights
that the actual policy stances of these candidates gets lost. This article
looks at the frontrunners’ business policies to understand how these could
impact economic growth and jobs.
Trump’s
plans
Like most Republicans, Trump’s
plans focus
on business/corporate tax and economic changes to stimulate growth in GDP and
jobs. First, he wants to reduce the nominal corporate tax rate from 35 percent
to 15 percent. Next, he wants to limit the pass-through entity (LLCs,
Partnerships, Subchapter S) to 15 percent. For international tax purposes, he
has a one-time 10 percent tax on all foreign profits currently held overseas,
which are estimated to be over $2.3 trillion. Lastly, he wants to eliminate all
other corporation tax expenditures or breaks, eliminate the corporate
Alternative Minimum Tax, and substantially reduce the deductibility of interest
expenses from debt.
He eliminates the estate
tax and taxes carried interest at ordinary income rates. While Trump is tough
to nail down on issues, he has said he supports energy production and would
sign into law the Keystone XL pipeline from Canada. On capital gains, Trump has
said he would eliminate the Obamacare 3.8 percent tax hike on the net
investment income. Coupled with his tax cuts for individuals, Trump’s plans
expand economic growth (+11 percent GDP) and job creation (5.3 million) over
ten years. Yet, the U.S. debt (+$11.98T) and deficit will expand rapidly as
well if his full plans for both corporate and individual plans are implemented,
according to think tanks like the Tax Foundation and the Tax Policy Center.
Clinton’s plans
Like most Democrats, Clinton’s plans focus on direct government spending to stimulate growth in GDP and jobs. Her policy has no change to the corporate tax rate or the pass-through rate. She has new corporate tax credits (15 percent) for incentivizing companies to provide their employees profit sharing and apprenticeships. Clinton has a $275 billion infrastructure spending plan to create jobs and increase efficiency in the economy through better roads, bridges and tunnels. Additionally, her plans include a $25 billion infrastructure bank to support “critical infrastructure improvements” and reauthorize a Build America Bonds program to help finance projects. On international tax issues, she keeps the current structure and adds three proposals tied to specific goals: broadens definition of an inversion transaction, attempts to stop “earnings stripping” by limiting U.S. interest deductions and adds an “exit” tax on U.S. companies re-domiciling to lower corporate tax countries like Ireland.
She
wants to spend additional funds on clean energy and scientific and medical
research. Recently, she has stated she wants to stringently regulate the
process of fracking to ensure reduction of the release of methane and eliminate
water contamination. To accomplish these goals, she plans to raise taxes in
many places to pay for the spending. The majority of the revenue raised by
Clinton would come from three areas: a cap on itemized deductions, the Buffet
Rule, and a 4 percent surtax on taxpayers with incomes over $5 million.
For
investors, she has a new long-term capital gains tax rate schedule. Under this
plan, her stated goal is to incentivize investors to extend the holding periods
for investments and to dis-incentivize short-term profit taking.
According to the Tax Policy Center, Hillary Clinton proposes raising taxes
on high-income taxpayers, modifying taxation of multinational corporations,
repealing fossil fuel tax incentives, and increasing estate and gift taxes.
“Her proposals would increase revenue by $1.1
trillion over the next decade. Nearly all of the tax increases would fall on
the top 1 percent; the bottom 95 percent of taxpayers would see little or no
change in their taxes. Marginal tax rates would increase, reducing incentives
to work, save, and invest, and the tax code would become more complex.”
Over ten years, the Tax Foundation scores the plan mildly negative for the
economy (-1.0 percent), mildly negative for jobs (-311k) and mildly negative
for the U.S. budget deficit (-$374 billion). However, the Tax Policy Center
states that her plan would reduce the federal debt by over $1.2 trillion over
the 10-year budget window.
On
trade, both Trump and Clinton are against the free trade pact called the Trans
Pacific Partnership or TPP. This free trade pact is a long-term positive for
the U.S. economy with 18,000 tariff cuts for U.S. businesses. Trump goes
further to say he would attempt to tear up other free trade agreements like
NAFTA.
Trump
vs. Clinton
Clearly,
the candidates have a carrot vs. stick approach to making policy changes to the
U.S. economy. Trump uses the carrot approach and cuts corporate, pass-through,
and international tax rates to generate growth. To accomplish this (and coupled
with his individual tax cut plans), Trump vastly expands the U.S. deficit and
debt. Clinton uses the stick approach and raises taxes to enact spending plans
on infrastructure, clean energy and scientific and medical research. To achieve
her goals (and coupled with her individual plans), Clinton significantly raises
taxes on the top 10 percent of income earners, increases regulations and rules
in the tax code, but does reduce the U.S. federal debt.
Overall,
this is a trade-off between Trump’s short-term rapid growth and long-term debt
expansion and Clinton’s essentially static growth with a $1 trillion long-term
debt reduction.
Sources:
Originally posted on Andrew Busch’s website.
http://affluentinvestor.com/2016/03/4603/
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