Large parts of former President Donald Trump’s economic agenda are outlandishly unwise.
In separate appearances this week before the Detroit Economic Club and the Economic Club of Chicago, Trump laid out a plethora of bad ideas, some of them familiar and a few of them brand new. Most of them would be counterproductive for the economy as a whole, and none of them are defensible conceptually or ethically at the micro level.
At both events, Trump spent most of the time defending his proposal to impose across-the-board tariffs of 10%-20% on all imported goods. The idea is so inane and has so thoroughly been pilloried by so many sources that we won’t linger on it here except to emphasize a few points. First, no matter how many times Trump says that the “other nation” or its businesses will pay the tariff, the claim is not even close to being factual, not even indirectly. Yes, foreign entities may suffer economically, but not a single foreign exporter would pay a single penny to the U.S. Treasury. By very definition, a tariff is paid by the importer. The money added to the Treasury would come exclusively from U.S. payers. Period, end of story.
Furthermore, Trump keeps claiming that the federal-debt-hiking effects of all his other budgetary extravagances would be more than covered by the revenues generated by the tariffs. Nonsense. Indeed, the tariff revenue would barely cover his three most prominent recent promises: exempting tips, overtime pay, and Social Security earnings from federal income taxes.
The Tax Policy Center generously estimates the net “revenue” from the tariffs at $2.8 trillion over 10 years — other sources say less. But exempting tips from taxation would cost the Treasury $250 billion in a decade, exempting overtime would cost $680 billion, and exempting Social Security earnings would cost $1.6 trillion, not to mention vastly speeding up the insolvency of both that program and Medicare. That’s at least $2.53 trillion right there.
Trump’s newest proposal, unveiled at the Detroit Club on Oct. 10, would allow a tax deduction for car loan interest payments. In addition to subsidizing high-income people disproportionately, that would be another 10-year cost to the Treasury of $61 billion. (For those counting, those four items alone would negate $2.64 trillion of the tariffs’ $2.8 trillion revenue gain.)
Trump touted all four proposals in Detroit. None of them are logically defensible.
In addition to each of them adding to the federal debt, each would have deleterious macro- and micro-economic effects, plus add unfairness or other ethical problems to the system. Eliminating taxes on tips, for example, would likely lead to employers offering lower base wages to start with. Or, many more businesses could structure their system as tip-heavy, thus creating yet another form of untaxable underground economy, with all the inherent vices that can come with black markets. Plus, why should a waiter not pay taxes on an essential part of his earnings while a welder still pays on all of his? That would be innately unfair.
As with the car loan proposal, the elimination of taxes on Social Security earnings would give hugely disproportionate benefits to high-income earners, while being of near-negligible benefit to those who really rely on their monthly Social Security stipend. And, by forcing both Medicare and Social Security into insolvency sooner, it would hasten the day when, by law, both programs, if unchanged, would be forced to make massive benefit cuts — again, hurting the poorer retirees for whom every dollar counts.
As for exempting overtime pay, it’s crazy. Why should people already earning half-again as much per hour also get those earnings tax-free when others without overtime options pay full fare? Plus, by incentivizing overtime work, Trump’s plan would put a damper on hiring unemployed people to do the same work. For multiple obvious reasons, that would not be a good thing.
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Finally, consider again his newest idea, that of making vehicle interest payments tax deductible. As with almost every item-specific tax giveaway, and unlike broad-based tax relief, the main result of this would be to boost demand for the single class of products, which would, in turn, boost prices. This would largely negate the effects of the tax deduction for the high-income people who itemize deductions while actually harming the purchasing power of the less-high earners who usually don’t itemize and so would see the price hikes without the tax benefits.
In sum, none of these Trump proposals make economic sense. All combined, they could be calamitous.