A report by an influential economist this week slammed Republican Donald Trump’s economic plan, but critics contend that it is filled with dubious assumptions — and parts of it even bolster Donald Trump’s populist economic appeal.
In the report, Mark Zandi, chief economist of Moody’s Analytics, concluded that Trump’s proposals on taxes, immigration, and trade policy are “fiscally unsound,” would balloon annual deficits and the national debt, and would likely spark a recession.
Zandi conceded the plan would goose economic growth to 3.7 percent and drive down unemployment to 3.5 percent.
For the record, Zandi also happens to be a donor to presumptive Democratic nominee Hillary Clinton’s campaign — in June 2015, Zandi donated $2,700, the maximum amount allowed by federal law, to Clinton’s primary war chest. Still, he targets Trump as bad for the economy.
“He is also very suspicious of globalization,” Zandi wrote. “His willingness to threaten higher tariffs on U.S. trading partners and his sharp criticism of major trade deals signal a reversal on the long-running expansion of U.S. trade and foreign investment. Requiring millions of undocumented immigrants to leave the country also signals less openness to the rest of the world.”
Conservative economists rejected Zandi’s conclusions. CNBC contributor Larry Kudlow tweeted that Zandi’s projection that lowering taxes, reducing regulation, combating terrorism, and securing the border would lead to recession was “implausible.”
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Alan Tonelson, an economic policy analyst who writes a fiscal blog called RealityChek, called the report “unconscionably bad, especially the parts about trade policy.”
Tonelson faulted Zandi for assuming that China and Mexico would respond to higher tariffs with retaliatory tariffs of their own. Those countries are far more dependent on trade than the United States, and would be hurt much more by a trade war, he said.
“They would either let it go and do nothing, or those nations would face the prospect of harming their economy,” he said.
Dan Celia, a nationally syndicated radio talk show host and the president and CEO of Financial Strategies Stewardship Ministries, said it is “lunacy” to try to forecast the impact of an economic plan that currently exists only in broad principles.
“There really isn’t a plan,” he said. “There were some general things that Trump put out there. What Moody’s did was make certain assumptions.”
“[Clinton’s] declared war on the new economy, on the gig economy, on the whole idea of being self-employed.”
Zandi also concluded that Trump’s plan — largely as a result of massive tax cuts — would actually successfully spark a short-term boom in 2017 and achieve many of the key populist promises Trump has touted on the campaign trail.
Zandi conceded the plan would goose economic growth to 3.7 percent and drive down unemployment to 3.5 percent.
But the Clinton donor went on to write that the boom would lead to steep reductions in the stock market and moderately raise inflation. Growth would slow to .6 percent in 2018 and then fall into recession the following year, according to the forecast.
Zandi ran the numbers for a second scenario, assuming smaller tax cuts that he projected would result in a smaller debt increase but higher unemployment and slower growth. A third scenario — assuming that a Republican-controlled Congress insists on steeper spending cuts to offset the tax cuts — forecasts that the economy avoids recession but that the painfully slow growth that has characterized the economy during President Obama’s tenure would continue for another decade.
Celia said Zandi fails to adequately account for the long-term improvement in tax collections that would be triggered by Trump’s tax cuts. How it shakes out will depend on other variables on spending that are yet to be determined, he said.
“Donald Trump is an uncertainty for the economy,” he said. “Hillary Clinton is a certainty, and the certainty is it is going to be a continuation of the spending — investments, she might say — of Obama.”
The Moody’s report lands as the economic debate of the 2016 race picks up steam. A CNN/ORC poll released this week indicates that voters trust Trump over Clinton on the economy 51 percent to 43 percent.
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Clinton made the economy the centerpiece of her speech in Columbus, Ohio, Tuesday but offered precious little in the way of detail. By Politifact’s count, 75 percent of her words were devoted to trashing the economic proposals of the presumptive Republican nominee. She followed up Wednesday in North Carolina with a speech reiterating her support for a higher minimum wage and higher taxes for corporations and wealthy Americans.
Grover Norquist, president of Americans for Tax Reform, said Wednesday on “The Laura Ingraham Show” that Clinton’s $1 trillion tax plan — plus taxes she has proposed but not attached a price to — would hurt the economy. He said Trump’s plan to slash business taxes from 35 percent to 15 percent, meanwhile, stood out in the crowded Republican primary field.
“Trump has put together a very good tax plan … We had 17 fine tax plans. Trump’s was one of the strongest,” he said.
Norquist also said Trump has been the candidate most focused on reducing the regulatory burden on businesses, while Clinton wants to crack down on non-traditional forms of employment, such as Uber and Airbnb.
“She is the candidate of the past,” he said. “She’s declared war on the new economy, on the gig economy, on the whole idea of being self-employed.”
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