2016 Presidential Candidates' Economic Plans
Clinton vs. Trump: Who Had the Best Plan to Save the Economy?
The 2016 Presidential candidates were Hillary Clinton (Democrat) and Donald Trump (Republican). Their party affiliation helps you understand their economic plans.
Democrats promote the Keynesian theory. It says government spending and tax cuts boost economic growth by increasing demand. Most Democrats target these policies toward middle-income families. They offset deficit spending with higher taxes on investments, large businesses, and high-income families. They address income inequality by providing more benefits for low-income households. People without a lot will spend any extra money on food, medicine, and shelter. That drives demand more than saving and investing does.
Republicans promote supply-side economics. That theory says reducing business, trade, and investment costs is the best way to increase growth. Companies use the extra money to hire more workers. Unfortunately, that hasn't been the case in this recovery. Companies have plenty of cash but aren't spending it on new jobs. They are putting it in the stock market, U.S. Treasurys, and overseas investments.
In 2016, many voters were frustrated with the traditional parties. That boosted Donald Trump's popularity. It has also taken him away from conventional Republican views. For example, he is opposed to free trade agreements. He wants to stop companies from outsourcing jobs by raising tariffs. Most Republicans think this makes U.S. companies less competitive in international trade.
Here are the candidates' solutions to U.S. economic problems, and how well they would work. Keep in mind any plan must be approved by Congress, as presidents can't impose tax or spending plans via executive order.
Trump Versus Clinton Economic Policies
Donald Trump promised to be the "greatest jobs-producer in history" by imposing tariffs on China, Mexico, and other trade partners. History has shown that protectionism doesn't work in the long run. Other countries would retaliate, reducing American exports. Tariffs also raise prices, increasing inflation and lowering the U.S. standard of living. Trump also promised to renegotiate NAFTA.
Trump would lower income and corporate tax rates and eliminate many loopholes. Tax cuts are the least efficient method of creating jobs. It would reduce revenue by $950 billion a year, adding to the $20 trillion debt.
To offset the lost revenue, Trump would cut spending. He promised to eliminate the Departments of Energy and Education ($80 billion combined). Trump promised to cut military spending (currently at $800 billion) but somehow make defense stronger and improve the Veterans Administration. Even if he eliminated these four departments ($880 billion), it would not offset the loss in revenue from his tax cuts.
Trump would need to cut the current $4.1 trillion budget by 12 percent to eliminate the $500 billion deficit. He'd have to cut mandatory spending such as Social Security and Medicare benefits. His cuts are more than the 10 percent cut to the Discretionary budget mandated by sequestration.
Trump promised to repeal Obamacare. At one point he said he would replace it with a universal market-based plan. Ironically, that mirrors Obama's original health care reform plan.
Hillary Clinton promised to boost growth by giving tax cuts to the middle class and small businesses. She pledged to reduce income inequality by raising the minimum wage. She would have raised short-term capital gains taxes for those earning $400,000 a year.
Her practical suggestions would have worked. Small businesses create 70 percent of all new jobs. Many top CEOs agree higher short-term capital gains taxes would reduce trading and increase long-term investment objectives.
Ahead of her time, Clinton was the only candidate in 2008 that committed to a balanced budget. Since the budget deficit is a large contributor to the declining dollar, high oil prices, and inflation, its elimination is critical to the long-term health of the U.S. economy.
Hillary has proven her ability to achieve her goals. During her service as First Lady, Senator, and Secretary of State, she racked up 14 major accomplishments.
Who Does Trump Have to Beat?
Trump would have to beat two Democrats before claiming the title of best jobs-producing president. Bill Clinton created 21.5 million jobs, which is the greatest number. Lyndon B. Johnson grew the job market by 20.7 percent. Trump would have to create 31.4 million jobs to beat them both. That's 20.8 percent more than the 151 million jobs at the end of Obama's presidency.
The True Causes and Solutions to Outsourcing
Trump's tariffs would hurt U.S.-based companies that employ anyone overseas. It would also raise costs for consumers. That's because the companies would raise prices to cover the cost of more expensive U.S. workers. Some U.S. companies would just move their whole operation overseas, while others would go out of business.
Why Protectionism Feels So Good, But Is So Wrong
Trade protectionism protects jobs in the short term. But it weakens the industry, and the economy, in the long-term That's because the competition is necessary to spur innovation. That's what makes America so great.
A nasty side-effect of trade protectionism is that other countries will immediately raise their tariffs. That would threaten the 12 million U.S. workers who owe their jobs to exports.
Do Tax Cuts Create Jobs?
Payroll tax cuts are more effective than income tax cuts in creating jobs. A study by the Congressional Budget Office found that every $1 million in payroll tax cuts creates 13 new jobs. That's because it allows businesses to hire new workers without increasing their payroll budget.
Even better are payroll tax cuts for new hires only, which creates 18 new jobs for every $1 million cuts. Income tax cuts aren't as effective, only creating 4.6 jobs for every $1 million cut. That's because many people save the extra money. It doesn't go into the economy, where it could stimulate demand.
Four Best Ways to Create Jobs
The best way to create jobs is with public spending, not tax cuts. A study by U Mass/Amherst found that $1 million in direct spending created 20 jobs. That same amount in unemployment compensation benefits created 19 jobs. Both tactics put money into the hands of people who immediately spend all of it.