Trumponomics = Regressive and Destructive
So much to fear about a second presidency for Donald Trump: The end of American democracy; the minimization of America’s role in the world; the emboldening of dictators like Russia’s Vladimir Putin and China’s Xi Jinping; and the probable wreckage of the strong Biden economy.
Much of what the former president says about his economic plans has always involved magical thinking. But in his meeting with Republican lawmakers earlier this month, Trump engaged in pure economic fantasy, suggesting that in a second term he would eliminate the income tax and replace it with revenue generated by imposing high tariffs on imported goods.
It is the plan of an economic illiterate. Replacing the income tax with tariffs would cripple the economy, stoke inflation, and set off a trade war. Worst of all, Trump’s putative economic plan would explode the national debt because the math does not, well, add up. As conservative economist Brian Reidl wrote on X: “If a 20yo interviewing for a House internship suggested replacing the income tax with a massive tariff, they'd be laughed out of the interview.”
The plan is regressive and the furthest thing from populism, a label often pinned on Trump. (Pet peeve: Stop calling Trump a populist. Nothing he did as president helped working people. Nothing he proposes now will help working people.) Eliminating the income tax and slapping high tariffs on imports would result in massive tax cuts for the fantastically wealthy (Trump’s “friends”), while raising taxes by as much as $8,000 a year on the middle 20 percent of households.
Make no mistake about it: Tariffs are a tax on consumers, with the brunt of the hardship falling on those least able to afford more expensive goods. Catherine Rampell, a Washington Post columnist, pointed out on X: “The bottom 40% of Americans currently pay zero (or negative) federal income tax. Presumably they would have to pay Trump's proposed tariffs though. So this sounds like a huge tax increase on the lower/middle income classes.” Republicans once understood that tariffs hurt consumers, but as the words of Anna Kelly, a spokesperson for the Republican National Committee show, the GOP now traffics in economic nonsense: “The notion that tariffs are a tax on U.S. consumers is a lie pushed by outsourcers and the Chinese Communist Party.” A lie, I guess, pushed also by every reputable economist.
Tariffs on imports would raise the cost of virtually everything Americans purchase, causing inflation, which is coming under control, to skyrocket. High tariffs would also explode the deficit. In the real world, tariffs imposed for purposes of raising revenue do not work. The rising cost of goods actually suppresses demand for imports, resulting in massive deficits as revenue fails to meet expectations. In turn, the government would have to slap even higher taxes on the remaining imports and drastically slash spending, including on such popular entitlement programs as Social Security and Medicare. That scenario may appeal to wealthy Republicans, but there is nothing “populist” about it.
Americans with a rudimentary knowledge of history and economics know the sad history of the 1930 Smoot-Hawley Tariff Act. Passed by a Republican Congress and signed into law by a Republican president, Smoot-Hawley aimed to protect American businesses and farmers buffeted by the Great Depression. By raising the average tariff by roughly 20 percent, the legislation prompted other nations to retaliate, causing banks around the world to collapse while reducing global trade. Smoot-Hawley was a dangerous miscalculation that deepened the Great Depression. Trump’s tariff plan is Smoot-Hawley on steroids.
Trump’s promise to slash immigration also would have deleterious economic effects. Cutting the number of legal new arrivals and deporting all undocumented immigrants would drastically exacerbate America’s labor shortage. The current low rate of unemployment — around four percent — indicates that the United States has too few workers, not too many. The labor shortage will only worsen in coming years. Economist Steven Rattner estimates that with the current low fertility rate and baby boomers retiring, America needs to raise the number of legal immigrants to about four million a year from the roughly one million now arriving.
The former president’s promised war on the administrative state (what he and his acolytes call “the deep state”) would likely mean businesses unrestrained and corruption tolerated. The removal of civil service protections for federal workers would result in a government of “yes” men and women loyal to Trump but unwilling to enforce government antitrust laws and regulations controlling the quality and safety of consumer products. Robert Shea, a budget official under President George W. Bush, said removing civil service protections would produce “an army of suck-ups.”
The three-plus years of Joe Biden’s presidency have been good for American capitalism. The stock market has boomed and corporate earnings are way up. Yet, the bigwigs of Wall Street and Silicon Valley’s tech barons have recently been throwing their support — and money — to Trump. Still, despite the recent flurry of huge donations by the super rich to Trump — which has reduced Biden’s previous financial advantage — the reality is that Trump suffers from the lowest level of corporate support in the history of the Republican Party. It appears that many corporate leaders and wealthy business people understand the danger of a second Trump presidency for the economy.
Trump certainly failed to wow a roomful of top CEOs at a meeting of the Business Roundtable earlier this month. One CEO told CNBC, “Trump doesn’t know what he’s talking about.” Another CEO said: “[Trump] was remarkably meandering, could not keep a straight thought, [and] was all over the map.” CNBC further reported that many corporate honchos came to the meeting “predisposed” to support Trump, but left less inclined to back him. (This is a good thing!)
The rise of autocratic rulers often involves a Faustian bargain: In exchange for a loss of individual freedom, autocrats promise prosperity and a booming economy. Mussolini reputedly made the trains run on time (mostly myth), and Hitler took Germany out of the Great Depression through massive military spending. Trump cannot even promise what the totalitarians of the last century offered. A second Trump term would give America both an authoritarian leader and a damaged economy. Americans would be unfree and poor!
Such a deal!
Posted June 25, 2024