Trump’s magical economic thinking – Simon Johnson

MIT Sloan Professor Simon Johnson

MIT Sloan Professor Simon Johnson

From Project Syndicate

Donald Trump has finally put out a detailed economic plan. Authored by Peter Navarro (an economist at the University of California-Irvine) and Wilbur Ross (an investor), the plan claims that a President Trump would boost growth and reduce the national debt. But its projections are based on assumptions so unrealistic that they seem to have come from a different planet. If the United States really did adopt Trump’s plan, the result would be an immediate and unmitigated disaster.

At the heart of the plan is a very large tax cut. The authors claim this would boost economic growth, despite the fact that similar cuts in the past (for example, under President George W. Bush) had no such effect. There is a lot of sensible evidence available on precisely this point, all of which is completely ignored.

The Trump plan concedes that the tax cut per se would reduce revenue by at least $2.6 trillion over ten years – and its authors are willing to cite the non-partisan Tax Foundation on this point. But the Trump team claims this would be offset by a growth miracle spurred by deregulation.

In fact, their estimates of the benefits of deregulation are completely exaggerated. Serious independent analysis, for example by the World Bank or the Organization for Economic Cooperation and Development, finds that the US does not have a high regulatory burden on the non-financial sector. In the World Bank’s widely used Doing Business indicators, for example, the US ranks seventh in the world – and there is not a lot of realistic room for improvement.

Sure, some companies always like to complain about regulation, and exaggerated numbers regarding the impact of various rules abound. But do you really want to base a country’s macroeconomic strategy on such meaningless claims?

Read the full post at Project Syndicate.

Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management, where he is also head of the Global Economics and Management group and chair of the Sloan Fellows MBA Program Committee

One thought on “Trump’s magical economic thinking – Simon Johnson

  1. Lower the maximum small business and corporate tax rate from 38 percent to 15 percent.The taxes for the rich would go up somewhat. End tax deferral on the $5 trillion in corporate cash held abroad. Allow a one-time repatriation that will be taxed 10 percent. Eliminate loopholes available to the very rich and corporations, such as the exemption on life insurance interest. Steepen the curve of the Personal Exemption Phaseout and the Pease Limitation on itemized deductions. Phase in a cap on business interest expenses.

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