Trump s Economic Policy Proposals Back to the Future? Bob Murphy Department of Economics Boston College

Transcription

1 Trump s Economic Policy Proposals Back to the Future? Bob Murphy Department of Economics Boston College

2 Figure 1 Macroeconomic Impact of Trump Policy Proposals, 10 Year Horizon Real GDP Growth Employment Increase CBO Baseline 2.0% per year 7 million With Trump Policies: Trump Economist 3.5% to 4.0% per year 25 million Tax Foundation Tax Policy Center 2.7% to 2.8% per year 1.8% to 2.2% per year

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4 Sources: Bureau of Economic Analysis, CBO August 2016 Baseline, CRFB calculations. Figure 3

5 Sources: CBO August 2016 Baseline, CRFB calculations. Figure 4

6 Figure 5 Trump Job Calculation Uses a Rule of Thumb: Every extra 1 percentage point of annual GDP growth = 1.2 million jobs So (3.5% - 2.0%)*(1.2 million)*(10 years) = 18 million extra jobs above a baseline Implies an Okun s Law much more generous than standard textbook versions From supply side, if the extra growth was due to productivity gains, then would have no employment effect If we assume growth reaches 3.5% and if we ignore these two points, is the 18 million job number feasible from a labor market perspective?

7 Figure 6 70 Percent Labor Force Participation Rate TRUMP HISTORY / CBO Source: Macroeconomic Advisers, LLC; CBO; BLS

8 Figure 7 $3T $2T $1T $0T -$1T -$2T -$3T -$4T -$5T -$6T -$7T Ten-Year Change in Fiscal Components by Candidate (Trillions of Dollars) Revenue Primary Spending Interest Surplus/Deficit (-) $1.50 $1.65 -$5.80 Note: estimates rounded to the nearest $50 billion. Source: Committee for a Responsible Federal Budget -$1.20 Clinton Trump $0.05 $0.70 -$0.20 -$5.30

9 Figure 8 Debt Under Candidates Proposals Fig. 1: Debt Under Central Estimate (Percent of Candidate of GDP) Proposals (Percent of GDP) 130% 120% 110% 100% 90% 80% Current Law Trump, Updated Trump, June 2016 Clinton, Updated Clinton, June % 86% 70% 60% Source: Committee for a Responsible Federal Budget

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11 Figure 10 Spending Cuts Needed Without Exempting Any Areas of the Budget 25% 20% 15% 10% 5% 0% Pay for Proposals Stabilize the Debt Balance the Budget 25% 15% 14% 11% 5% <0.5% Clinton Trump Clinton Trump Clinton Trump Source: CRFB calculations based on CBO projections and each candidate s official website.

12 Figure 11 Spending Cuts Needed if Exempting Social Security, Medicare, and Defense 80% 70% 60% 50% 40% 30% 20% 10% 0% Pay for Proposals Stabilize the Debt Balance the Budget 72% 44% 36% 30% 13% 1% Clinton Trump Clinton Trump Clinton Trump Source: CRFB calculations based on CBO projections and each candidate s official website.

13 Figure Year Revenue Loss from Trump Tax Plan: Static Dynamic Tax Foundation $4.4 to 5.9 Trillion $2.6 to 3.9 Trillion Table One: Tax Revenue Offset Under Trump Trade, Regulatory and Energy Policy Reforms Cumulative Federal Tax Revenue Increases ( , Nominal Dollars, Trillions) Trade Policy Reforms $1.740 Regulatory Policy Reforms $0.487 Energy Policy Reforms $0.147 Total $2.374 At $1.74 trillion, trade policy reforms provide the largest revenue gain. This is followed Source: Navarro and Ross (September 29, 2016)

14 Figure 13 Real Economic Growth Rate Needed (Annual Average Real GDP Growth) Fig. 4: Real Economic Growth Rate Needed (Annual Average Real GDP Growth) 7% 6% 5% 4% 3% 2% 1% 0% Pay for Proposals** Stabilize the Debt Balance the Budget 2.0%* Current Projected Growth: 2.0% 3.0% 2.7% 3.5% 4.5% 6.1% Clinton Trump Clinton Trump Clinton Trump Source: CRFB calculations based based on dynamic on dynamic feedback feedback projections projections from Tax from Foundation Tax Foundation for revenue for and revenue CBO for and CBO immigration reform and ACA repeal. *Requires additional growth of less than 0.1 percent. **Assumes growth sufficient to maintain currently law debt-to-gdp ratio of 86 percent by 2026, although nominal debt levels will still increase.

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18 Source: Federal Reserve Board 2016 Figure 17