Much Ado About Detroit (Aug. 9)

Mike & Co.,

Trump delivered a speech before the Detroit Economic Club today on the theme of “economic renewal for America,” featuring an overhaul of his published plan for tax reform.  An adumbration of previous policy pronouncements and clarity as to his vision of the economy and how to achieve it was widely anticipated.

But Trump’s main message, as regards policy specifics, was “I’ll Tell You Later.”  Voters seeking concrete details as to economic initiatives and goals got more platitudes than prescriptions.  His plan for the economy, promised at the time of the convention earns an Incomplete.  Still, some themes emerge.

Below  is a look at the “four reforms” on taxation, regulations, trade, and energy policy addressed by Trump and some items for initial consideration in a rebuttal.

Best,

Dana

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•. Tax Reform

Trump described his proposed tax plan as the “biggest tax revolution” since the 1986 reform under Reagan and stressed his bracket reductions.  But the most discernible reform is to his own original tax plan announced this spring.  It was famously estimated to cost $10 trillion over a decade. His campaign now says his new tax policy will cost $3 trillion over the same period.  As more details are released — it a matter of “weeks” — it appears his plan hews much closer now to the House Republican proposal released by Speaker Paul Ryan earlier this year, which could signal a shift in rhetoric towards more traditional Republican policies.  Providing only a thumbnail sketch of this “revolution,” Trump may be hyping his eventual rollout or just trying to change the subject after a week of errors.

Trump supported reducing the number of tax brackets from seven to three, at 12, 25, and 33 percent.  It is not certain whether Trump intends to keep his original proposal that Americans earning less than $25,000, $50,000 for married couples be exempt from income tax.  He did reiterate his support for ending the estate tax and the carried interest deduction, a curious pair of positions.

Trump also said he would set the corporate tax rate at a flat 15 percent.  Gene Sperling cited a key problem with Trump’s “15 percent solution” for businesses: anyone with “pass-through income” will benefit from the lower tax rate.  Individuals with business income, including consultants, lobbyists, hedge fund managers, investment bankers, and corporate lawyers, could all pay 15 percent in income taxes, a much lower rate than that faced by most middle class families.  Sterling noted the plan would increase income inequality.

Trump supported a childcare tax deduction equal to the average cost of care.  Tax deductions are typically regressive by nature, but Trump’s suggestion to make this deduction based on the average cost of childcare would in fact be a relatively progressive proposal (if not a breakthrough policy solution to the current structurally regressive nature of most tax credits and deductions; more on this upon request).

•  Regulatory Reform

Trump criticized current regulation as costing the American economy $2 trillion each year and called for a removal of the “anchor dragging us down.”  Trump promised a moratorium on all new agency regulations upon entering office, proposing to ask federal agencies to compile a list of regulations that “are not necessary, do not improve public safety, and needlessly kill jobs.”  He promised to eliminate all such regulations. Trump also pledged to cancel all “illegal and overreaching” executive orders.

Further specifics on regulatory reforms were not provided.  His stated intention to remove special interest loopholes that benefit Wall Street investors appears to be a bit at odds with his recently announced economic team, comprised of 13 men with amole experience on Wall Street.   Sen. Elizabeth Warren criticized Trump’s agenda, saying the latest plan was written by “rich corporate insider advisors” seeking to tilt economic in their favor.  Sen. Warren added that while “cheating customers and gaming the system” with fellow plutocrats might be Trump’s business method, it’s not how America will do business.

•  Trade

Trump stressed trade reform as “one of the most important,” and specifically criticized the TPP, NAFTA, and US-Korea bilateral.  He reiterated his previously stated support for a renegotiation of NAFTA, tariffs on countries with unfair subsidies, and protections against currency manipulation.  Trump remarked on the need for greater trade deal enforcement, particularly regarding intellectual property rights.  He criticized China for having poor standards on labor and the environment, despite the fact that virtually all trade agreements include  labor and environmental protections.   He pledged to support only trade deals that create more jobs and higher wages for Americans.  Again, these policies were all public prior to this speech and received precious little clarification today.

•  Energy Policy

Trump expressed his support for coal miners and steel workers and supported removing “job-killing energy restrictions.”  He stressed that lifting restrictions on all sources of American energy will increase GDP, tax revenues at the federal, state, and local levels as well as aggregate  economic activity.

General Assessment/Rebuttal Outlines 

Fact checkers have plenty but still less work than usual today following Trump’s speech.  In each of the four policy areas discussed, Trump stated that facts and details would be released in the coming weeks and no question and answer period was permitted at the end of the remarks.

Early in the address, Trump asserted that his economic agenda would focus especially on “those who have the very least.”  This remark garnered an awkward silence from the business-focused audience.  Trump was also interrupted by protestors over a dozen times.

He had precious little to say about the automotive industry, central to the Michigan economy once again, except to suggest that he would not have bailed it out.  It is possible that Trump’s economic agenda is being primed to line up closely with that of Speaker Ryan, particularly on taxation.  But if he is in the process of converting to Ryan’s proposals, is it worth asking if Trump may be abandoning his promise not to cut entitlements.

This address was hastily scheduled amid Trump’s difficult news cycle last week and recent drop in the polls.  On the merits, Trump’s economic plan remains, per American Enterprise Institute’s Jim Pethokoukis, “a hodgepodge of economic policies” with no coherent or even

colorable solutions to current economic problems in America.   Douglas Holtz-Eakin, former economic advisor to Sen. John McCain, dismissed the policy in the speech as a “hot mess.”

Everyone in the GOP knows you don’t roll out a major new product in August.  So Trump gets a mulligan for now.  But time is running out and the candidate still could end up — in economic policy terms — a populist,  a state corporatist, a supply-sider, a protectionist, a free marketeer, or some judicious blend of these.  You might think he, and we, would have a clearer picture by now but it is just as hard as last week or last year to eek out a coherent Trump economic policy in the flotsam and jetsam he offered in Detroit