Before President-Elect Donald Trump is even sworn in, he can claim to have saved hundreds of manufacturing jobs.
All without policy implementations. Or legislation. Or executive orders.
“Nothing bad will come from cutting the corporate tax rate from 35 to 15 percent.”
Trump claims to have pressured Ford Motor Co. into keeping an assembly line open at a Louisville-area plant. He also negotiated that Carrier Corp. will retain 1,000 jobs at an Indianapolis plant that the air-conditioning company had previously planned to move to Mexico.
Ultimately, Trump says he wants to create 25 million new jobs.
But to keep the ball rolling, Trump will have to do more than just publicly pressure big firms to retain jobs in the United States. He will need a variety of policy changes on everything, from taxes to regulation, from trade to energy, according to economic experts.
And at least one longtime Republican economist thinks he will able to get what he needs from Washington, D.C., once he takes office on Jan. 20.
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Trump, after all, will have a Republican Congress and Republican-leaning officials at the Federal Reserve with whom to work. That will help him implement a dynamic agenda, according to Arthur Laffer Sr., the father of supply-side economics who worked for Presidents Nixon and Reagan.
Laffer says Trump has what few new presidents have had in the past: a Congress controlled by his own party, with a Supreme Court and a Fed also controlled by people on his side of the aisle. Laffer notes the Republicans also have a strong majority of state legislatures and governors’ offices.
The allies in Washington and state capitals could help Trump bring forth policies with much more ease and less divisive congressional debate.
Both parties have been shocked to the core by Trump’s election — so there is less chance Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi will wage major battles to stop most items on Trump’s economic agenda.
But they will complain. One likely item on the jobs agenda is Trump’s promise to cut the corporate tax rate. Corporations have been a favorite target of Democrats, but the political tactics didn’t work on Nov. 8. Most Americans in swing states just wanted more jobs and better wages.
Laffer says the corporate tax rate in the United States is the highest in the 35 member-nations of the Organization for Economic Cooperation and Development. The United States recently overtook Japan with a top federal corporate rate of 35 percent — or 39.1 percent, if you include state taxes.
Trump would like to cut the top rate to 15 percent.
“Nothing bad will come from cutting the rate from 35 to 15,” said Laffer.
Laffer, who devised the “Laffer Curve” theory to explain that high tax rates can sometimes produce less revenue than moderate or low tax rates, said the U.S. corporate tax rate is now bringing in some of the lowest revenues in the OECD nations.
“It’s the Laffer Curve perfectly,” said Laffer.
Laffer said he also likes the Trump plan to allow manufacturers to take full expense deductions of plant and equipment purchases, an invitation to investment in U.S. workplaces. If employers elect this approach, they will give up the ability to deduct interest expense, according to Trump’s website.
Laffer believes those two major items will pass Congress and spur job creation.
Curtis Ellis, executive director of the American Jobs Alliance, said if Trump targets reform of trade, taxes, regulation, and energy policy, he will create jobs in the process.
Current policies discourage American manufacturing and encourage foreign-made goods to be imported into America.
Worsening this problem is the tax structure in many foreign trading partners, Ellis said. Most nations use a value-added tax, or VAT. The VAT is applied all the way through the manufacturing process.
But when the products are finished and shipped to America, the manufacturer gets about a 17-percent rebate. This helps subsidize exporting to America, Ellis said.
On the other hand, despite deals to forbid tariffs, American products shipped to foreign nations get a VAT added. This is basically a tariff, Ellis said, noting not all legal experts agree on the issue.
Trump is aware of the VAT problem and will address it, Ellis said.
Laffer said he is wary of protectionist policies but said he is not overly concerned about Trump’s plans to toughen trade policies. He is enthused to see a supply-side return.
“It will be a two-to-three-year period of magnificent change,” Laffer said from his Nashville office.
Laffer advised Trump in the primary elections, and now advises him indirectly through mutual friends, including economist and CNBC commentator Larry Kudlow and economist Stephen Moore.
Laffer said he will stay in Nashville, Tennessee, where he runs his business, but will pass on advice to Trump as needed.