Reaganomics as Trumped up Trickle down?

Do you think Trump’s reimplementation of a slightly tweaked Reagonomics policy would work  for America, given the vast differences in the economy during Reagan’s era and now? 

In the presidential race of United States, Donald J. Trump had a victory which has been summoning back the façade of former Republican President Ronald Reagan. Right from turning into politicians from being B-list entertainers, to wishfully kick start the U.S economy, they do have commonalities. Reagan had to do with stagflation – arising from a combination of the works ‘stagnation’ and ‘inflation’, refers to the simultaneous appearance of inflation and recession which pestered the US economy. Crippled America – labeled Trump for his campaign book and has been pondering over the months, on the ominous state of the U.S. economy.

Reaganomics- as are called of Reagan’s economic policies- which were built on supply side economics was an imperative step to alter the pattern of the U.S. economic policies. He introduced his four important policy objectives in his 1981 Program for Economic Recovery which includes: limit government spending, reducing the marginal tax rates on income from both labor and capital, reduce regulation and lower inflation by restraining the growth of the money supply. Trump’s objectives are also similar to that of Reagan’s, he also proposed for hard-hitting tax cuts, reforms in regulatory, trade and energy policies which is nothing but that same old plans which the Democrats contemn as “trickle-down”.

While, George H.W.Bush, the then Reagan’s running mate, had dismissed his objectives as “Voodoo economics”, Hillary Clinton has indicted Trump for encouraging the extreme version of trickle-down economics and has called his tax plans “Trumped-up trickle-down” by opposing that the country should “never go back to what got us in trouble in the first place.”

‘Trickle down’ or ‘Voodoo’ economics, in theory, is simply tax cuts for the rich which will ensure that they have more money left in their pockets, which would in turn encourage investment and employment, improve the growth of the economy and create adequate new tax income which would compensate for the cuts. Trump proposed to ensure that the rich will pay their fair share, but no one will pay so much that it destroys jobs or undermines our ability to compete. Reagan’s federal tax code was extensive; he reduced the marginal tax rate on individual income from 70 percent to 28 percent while the corporate income tax was reduced from 48 percent to 34 percent. The Trump plan is going to lower business tax from 35 percent to 15 percent while abolishing the corporate alternative minimum tax for all businesses, small and large, which would then have an incentive to retain their profits. According to Trump, this is going to be a job creator which U.S has not seen since Ronald Reagan.

trump
source: astepoffthebeeskneesdotcom.files.wordpress.com

Regardless of the promising economic conditions during the Reagan era, the economy of the United States has witnessed unrest. The pestered stagflation, which the U.S has been experiencing since 1973 was altered by the Reagan’s economic initiatives into a persistent period of higher growth along with lower inflation. With this hindsight, Reaganomics has accomplished to make sharp reductions in marginal tax rates and inflation. Americans reminisce Reagan’s era as an era of economic prosperity with rise in household wealth, which is why they suppose that Trump would re-erect this era.

But here is what William A. Niskanen has to say, Reagan had left three foremost and unfavorable legacies at the end of his term. Firstly, the privately held federal debt increased from 22.3 percent of GDP to 38.1 percent and, during his time, the federal deficit was at 2.9 percent of GDP in his last budget. Secondly, the failure to address the savings and loan problem early has led to an additional debt of $125 billion. Thirdly, Reagan’s administration has introduced more trade barriers than any since Hoover’s administration.

Trump has pledged to cut the tax brackets from seven to three, while low –income Americans will have an income tax rate of 0. The rates and breakpoints are as follows:

For Married – Joint filers:

Less than $75,000: 12%

More than $75,000 but less than $225,000: 25%

More than $225,000: 33%

The brackets for single filers are half of these amounts and one of his vision for reducing tax across the board especially for working and middle-income American who will receive a massive tax reduction. But a recent study by one of NYU’s professor Lily Batchelder, shows that more than half of America’s single parents and one-fifth of its families with children would see their federal income taxes go up under Donald Trump. Batchelder has pointed out a math problem lying in Trump’s tax plan, which she says, abolishes some tax breaks while adds others. According to this study, it removes the personal deduction which is at $4,050 for each person of a household filing taxes, whereas it raises the standard deduction for all the tax filers and generates new benefits to offset the cost of child care, by jumbling up and fusing the tax brackets where the first income group is taxed at 12 percent rate which is currently at 10 percent.

If the Republican Party is promoting the ancient Reaganomics agenda, then there is a need to look into the one considerable difference between Reagan and Trump, which are the milieu in which Reagan took over and the one which Trump is succeeding to. Reagan’s inherited when the U.S. asset prices were very low, which benefitted the households when these asset prices rose, however, the current asset prices are already high. Trump has made promises to make sweeping changes which would be severe to undo, with his aim to dent the free trade agreements and impose severe restrictions.

Jared Bernstein says tax cuts were more sensible during the Reagan era because the 70 percent personal tax rate at the top was extremely higher than the current 40 percent, where the cut was more incentivizing to encourage investment, however, Trump’s corporate tax cuts would mean that it encourages investments and businesses would hire employees. If Trump is all about the Trickle down economics over again, we will have to wait to witness on how he would remake the Reagan era, because it is just the beginning of the Trump era.

Sanjana Medipally is a student at Jindal School of International Affairs.

References:

Bartlett, B. (2009). The New American economy. 1st ed. New York: Palgrave Macmillan.

Jim, T. (2016). A new study says Trump would raise taxes for millions. Trump’s campaign insists he won’t. The Washington Post. [online] Available at: https://www.washingtonpost.com/news/wonk/wp/2016/09/24/a-new-study-says-trump-would-raise-taxes-for-millions-trumps-campaign-insists-he-wont/ [Accessed 7 Oct. 2016].

Trump Pence. (2016). Tax Plan. [online] Available at: https://www.donaldjtrump.com/policies/tax-plan/ [Accessed 3 Oct. 2016].

NBC News, (2016). The First Presidential Debate: Hillary Clinton And Donald Trump (Full Debate). Available at: https://www.youtube.com/watch?v=855Am6ovK7s [Accessed 26 Sep. 2016].

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