Mike & Co.,
In the wake of the Democratic convention in Philadelphia last week, which earned the campaign a substantial bump in the polls as the general election phase formally begins, the first major economic policy report card — an assessment and comparison of the candidates’ proposals — has been published.
Last Friday, Moody’s Analytics released a report on the macroeconomic consequences of HRC’s economic policies. Moody’s published a similar review of Donald Trump’s plans in June. Their evaluations and conclusions are contrasted below. The report provides as strong an endorsement of HRC’s economic policy as could be expected from a respected neutral authority.
Moody’s analysis focused on HRC’s proposals on taxation, infrastructure, immigration, labor policies, and education. Should all of HRC’s plans be implemented in her first term, Moody’s concluded, they would produce a stronger U.S. economy, with higher GDP and an increased number of jobs. By comparison, the report on Trump’s economic plans found them “fiscally unsound” and likely to create a “more isolated and diminished” U.S. economy – not to mention a recession.
Present Economic Status
As of July, the United States has reached 76 consecutive months of uninterrupted private sector job growth. Over the past year, unemployment has remained close to 5 percent and in May reached its lowest rate since 2007, 4.7 percent. While second-quarter GDP growth was slower than expected at 1.2 percent, much of the shortfall was due to contractions in business inventories, not a reliable metric for future growth. Looking exclusively at final sales, meaning GDP excluding inventories, the economy instead grew at 2.4 percent, indicating continued slow but steady overall GDP growth.
Consumer spending grew by an impressive 4.2 percent in the second quarter, reflecting an improved labor market and the reduced cost of energy. Total retail sales have improved by 3.1 percent over the first two quarters of 2015. Wages and salaries as a portion of compensation are up 2.5 percent over the past year, indicating that worker pay is accelerating.
For the economic recovery to extend to all sectors, regions, and demographic groups, businesses will need to increase investment to meet consumer demand. Otherwise, low investment will eventually lead to a decrease in jobs and a fall in consumer spending.
HRC Plans Promote Faster Growth
Per Moody’s analysis, under HRC’s economic agenda, the benefits of immigration reform, improved infrastructure, and increased spending offset the economic drag from higher taxation, an increased minimum wage, and larger deficits. Moody’s projected real GDP to grow an additional 1.7 percent in four years and yield 3.2 million new jobs due to her policies. The unemployment rate would fall as low as 3.7 percent. From 2017 to 2020, the average American’s real after-tax income would rise by approximately $2,000, roughly $300 more than under current law.
The report specifically praised HRC’s policies on immigration and infrastructure, attributing the benefits of a larger workforce and improved infrastructure on productivity and business competitiveness, and corresponding economic growth to them.
HRC’s proposal for paid family leave is projected to lift labor force participation and greater investment in education, both early childhood and college-level, would generate higher educational attainment for workers. Both policies would result in a stronger, more productive workforce.
Benefits for Average Americans
Moody’s stressed that HRC’s proposals on economic policy would, by and large, benefit low and middle income households the most. The report noted that such families would receive increased government assistance while facing the same level of taxation, and would also benefit from a stronger economy.
High-income households would pay more taxes under HRC’s proposals. But Moody’s noted that such households, unlike lower and middle class families, do not typically reduce spending in equal amounts to their tax increases, thus mitigating the negative impact of tax increases on GDP.
An op-ed in today’s WSJ by Prof. Alan Blinder, former Vice-Chairman of the Federal Reserve, further underscored the benefits of HRC’s economic agenda to the average American. According to Blinder, the combination of a higher minimum wage, tax incentives for profit-sharing businesses, improved education, and an increased Earned Income Tax Credit is “almost guaranteed” to raise real wages for American workers.
Moody’s found that HRC’s economic policies would create a “modest increase” in federal budget deficits, largely arising from HRC’s plan to end sequester spending cuts. All told, though, her agenda is “nearly deficit neutral,” as most of her proposed additional spending is financed by increases in taxation on the wealthy. Moody’s concluded that the national debt to GDP ratio would be “largely unaffected” under HRC’s agenda.
Obstacles to Growth
Moody’s reported that a few of the proposals could constrain growth at the margin. HRC’s federal minimum wage hike would likely have “modest” negative consequences on employment due to the long phase-in period. But the minimum wage increase could give the average American more cash and stimulate the economy without costing jobs.
The analysis claims that HRC’s agenda does not directly focus on increasing private sector investment, citing a lack of direction regarding corporate tax reform. Moody’s remarked that potential bipartisan support for changes to the corporate tax code make it a prime policy area for improving the economy’s global competitiveness.
Comparison with Trump
Moody’s conclusions on HRC’s economic agenda are strikingly different from those in their report on Trump’s economic plan. It projected a more isolated U.S. economy under Trump, due to decreased immigration, trade, and foreign direct investment, all of which would contribute to reduced economic growth. Annual federal deficits are expected to increase, as is the total federal debt, given the combination of extensive tax cuts and expanded spending.
Should all of Trump’s proposals be enacted in full, Moody’s forecasted a “lengthy recession,” as well as a smaller U.S. economy at the conclusion of his first term. In addition, the analysis predicted approximately 3.5 million in net job losses and an unemployment rate of seven percent. The report confirmed that high-income households are the primary beneficiaries of Trump’s economic plan, while the income of the average American household would stagnate.
Even accounting for political compromises necessary for passage of her plans in Congress, Moody’s finds that her proposals would still result in a stronger U.S. economy. Added real GDP growth would still be over two percent above levels projected under current law — an additional $60 billion by 2020. Over a decade, the report projected that HRC’s compromise policies would still create an additional 1.5 million jobs, with a strong fiscal situation and a modest impact of a small minimum wage increase. Even with Washington gridlock, HRC’s policies still would generate strong positive results for the economy.