OhF THE MANY The differences between Donald Trump and Joe Biden, perhaps the easiest to quantify, concern tax policy. Mr. Biden has long pledged to raise taxes on the wealthy and corporations. Mr. Trump's main legislative achievement since his presidency has been a program of tax cuts in 2017. Not surprisingly, many business owners prefer Mr. Trump on taxes. The big economic question is whether they are shortsighted and neglecting America's fiscal health, which they also claim to care about.
When Mr. Trump was elected in 2016, the net federal debt was about 75% of the federal debt. GDP. When he left office in 2021, he represented 97% of GDP. The Congressional Budget Office (OC) predicts it is on track to reach a staggering 181% in three decades. At this level, the government's annual interest payments are expected to exceed its combined spending on national defense, education and roads. This increases the risk of a financial crisis – a less than ideal environment for businesses.
Critics of Mr. Trump point to the debt trajectory under his watch as evidence of fiscal mismanagement and warn that he would only make things worse if elected to a second term. Many of his tax cuts are set to expire at the end of 2025 (the personal tax rate for top earners will return to 39.6% from 37%, for example). If Mr. Trump returns to power, he will try to make the budget cuts permanent. THE OC estimates that this would add about $350 billion to the deficit per year over the next decade, the equivalent of 1% of the GDP (see table).
Yet this line of criticism misses two important points. First, the debt accumulation under Mr. Trump stems largely from stimulus measures launched soon after the outbreak of Covid-19, which countered some of the economic drag caused by the pandemic. The comparison is not flattering for Mr. Biden: he extended stimulus in 2021 when there was less need for additional fiscal support from the government, and that additional spending helped fuel the inflation.
Second, it's not enough to just focus on taxes. The interaction between taxation and growth is at the heart of debt sustainability. “The biggest cause of our budget problems is that we don't have enough growth,” says Stephen Moore, who helped design Mr. Trump's tax cuts in 2017. “We want to bring in jobs and capital here, and yes, we can grow. ” Many economists view this as hyperbole. After all, during the 2016 election, Mr. Trump promised that deregulation and tax cuts would unleash a torrent of economic growth; in reality, the rate of U.S. growth increased only slightly in the two years after its tax law took effect, before Covid broke out. But this additional activity helped increase U.S. tax revenue, offsetting some of the cost of tax cuts “To think that you have to tax to reduce the deficit is misleading,” says Tomas Philipson, an economic adviser to Mr. Trump’s administration.
Mr. Biden’s approach offers a counterpoint. He called for a series of tax increases, including an increase in the corporate tax rate from 21% to 28%. “It could be counterproductive,” said Erica York of the Tax Foundation, a think tank. Ms York and her colleagues believe Mr Biden's tax proposals would reduce the US debt.GDP but it would also shrink the economy by 1.3%, while Mr. Trump's tax cuts, if permanent, would increase debts but increase in the long term. GDP by 1.2%. In any case, it is not a simple compromise.
Really cleaning up America's finances would require reforms to major social programs, particularly income support for retirees and state-provided health insurance, which together account for nearly half of federal spending. Here, Mr. Trump and Mr. Biden seem indistinguishable. Both remain silent on serious changes to these programs, because both are acutely aware of the unpopularity of any cuts. ■
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