Wilbur Ross and Peter Navarro: Trump Economic Plan

Donald Trump’s economic plan proposes tax cuts, reduced regulation, lower energy costs, and eliminating America’s chronic trade deficit. Trump’s goal is to significantly increase America’s real GDP growth rate and thereby create millions of additional new jobs and trillions of dollars of additional income and tax revenues.

Hillary Clinton’s economic plan will inhibit growth. It proposes higher taxes, more regulation, and further restrictions on fossil fuels that will significantly raise energy and electricity costs. Clinton will also perpetuate trade policies and trade deals she has helped put in place that have led to chronic trade deficits and reduced economic growth.

 

Source: here (pdf)

Trump proposes eliminating America’s $500 billion trade deficit through a combination of increased exports and reduced imports. Again assuming labor is 44 percent of GDP, eliminating the deficit would result in $220 billion of additional wages. This additional wage income would be taxed at an effective rate of 28 percent (including trust taxes), yielding additional tax revenues of $61.6 billion.

In addition, businesses would earn at least a 15% profit margin on the $500 billion of incremental revenues, and this translates into pretax profits of $75 billion. Applying Trump’s 15% corporate tax rate, this results in an additional $11.25 billion of taxes. 19 This leaves businesses with $63.75 billion of additional net profit which must be distributed between dividends and retained earnings. If businesses pay out one third of this additional profit as dividends and these $21.25 billion worth of dividends are taxed at a rate of 18%, this yields another $3.8 billion of taxes, after which there remains $17.45 billion of net income.

Academics pooh-pooh and roll their eyes but I don’t see it as much worse than their DSGE “models” or their semi-endorsement of quantitative easing and central banker’s reasoning in general.