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Refuting Trump's Platform- Megapost (ontheissues.org)

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[–]prillin101Fiat currency has a 27 year lifespan[S] 88ポイント89ポイント  (19子コメント)

The opinions I list Trump as having in this R1 come from here and his website, and I only use quotes from 2015 as he changes his opinions a lot based off votes.

I was going to write a lengthy introduction, but I decided not to. Instead I'm just going to list each position and then refute it- with my main tool being the numerous studies proving his ideas dead wrong.

Trump's Tax Plan and the Laffer Curve

Cut taxes by $10T but don't increase deficit. (Oct 2015)

Straight from his website

Under Trump's plan, indiviuals earning below $25,000 or families filing jointly earning under $50,000 would owe zero tax, and the tax code would be simplified into 4 brackets (0%, 10%, 20%, or 25%).

Table:

Income Tax Rate Single Filers Family Filers Heads of Households
0% Up to $25,000 Up to $50,000 Up to $37,500
10% $25,001 to $50,000 $50,001 to $100,000 $37,501 to $75,000
20% $50,001 to $150,000 $100,001 to $300,000 $75,001 to $225,000
25% $150,001 and up $300,001 and up $225,001 and up

The median US income is around $51,000, most Americans will have the bulk of their taxes levied at the tax rates of the bottom two (0% and 10%).

This is a massive drop from where it currently is, and the growth effects from the massive tax cuts would need to be enormous (Which Trump claims them to be). The question is, however, does his claim of growth hold up empirically?

It does not. Trump is suggesting that we levy tax rates way past the revenue optimal tax rate (Laffer Curve), but this is simply incorrect. We are way past the point where we can lower income taxes and gain revenue instead of losing it. It would be one thing if Trump claimed the tax cuts would spur the economy, but did not claim they were on the correct side of the Laffer Curve, but he did not. He insists that there can be tax cuts that are simultaneously growth-promoting and revenue-positive, but that is incorrect. The Tax Foundation finds that Trump's tax plan in specific would cost an estimated $9.5 trillion dollars over 10 years, and even its dynamic model suggests there would be a massive deficit remaining (I say "even" because dynamic models are notoriously imprecise and generally are incorrect, static models should be relied on).

To summarize, Trump claims that his massive tax cuts will generate so much growth that they will pay for themselves, however most economists and empirics disagree.

Cutting the Capital Gains Tax

First Quote

This sub in general seems to follow the conventional wisdom that the optimal tax rate for capital gains is zero, but I don't think that is true. Unlike the corporation tax, the empirical evidence of the 0% capital gains rate is not as strong as it was in the 90's. The infamous Piketty 2012, a 2009 JEP study, and a Saez study give contradicting results to the conventional wisdom popularized in the 90's, leaving it controversial in my eyes.

Immigration

Ship millions back to Mexico, like Eisenhower did. (Nov 2015)

Building a wall will save money because it stops bad dudes. (Jul 2015)

Mexican government is sending criminals across the border. (Aug 2015)

Half of the undocumented residents in America are criminals. (Jun 2015)

We must stop illegal immigration; it hurts us economically. (Nov 2015)

Immigration seems to be one of the few cases of American exceptionalism. In Europe, immigrants generally commit more crime and in some nations are not net positive economically (Sweden, for example, but in Sweden's case it's mostly because of backwards government incentives), while in the US immigrants commit less crime than natives and do not have the same labour market issues immigrants to Europe have.

Economically speaking, the evidence for/against immigration is a very mixed pot. Studies are all saying very different things and the literature is controversial, however a narrative can be pieced together. For high-skilled immigrants and members of the H1B program, the evidence seems to be strongly in favour of net-positive economic effects brought by them. For low-skilled immigrants, the literature is very very mixed, and nothing is as certain as it may be with skilled immigrants for example. Evidence leans towards the idea that low-skilled immigrants are a net benefit to the average American, but directly lower wages for low-skilled Americans- however it is not a very big lean. Giovanie Peri's working paper, for example, finds that H1B Visa workers and STEM immigrants drive wages up for all Americans, while a Borjas study with around 1200 cites (holy shit) finds that low-skill Mexican immigrants are hurt wages. Rather than expel immigrants, a CBO paper finds that allowing a path to citizenship for illegals would actually raise GDP by 5.9% and lower the deficit by $859 billion over 20 years. Furthermore, A meta-study from Harvard finds that "“Most empirical studies estimate the fiscal impacts of immigration to be very small… On average, immigrants appear to have a minor positive net fiscal effect for host countries.”" However, another Borjas study with 3006 cites (This guy is like the Kanye of economists, jesus that's a lot of cites), finds as Mexican immigration increases the average US wage decreases massively. But, Card responded to Borjas with a smackdown from downtown and Ottovonia came out with a spirit bomb and found that low-skill AND high skill immigrants increase average native wages. That's not to say Borjas has been completly refuted, he still is a giant in immigration econ and has another study supporting his conclusion.

From this link-salad of studies you can see that the low-skill immigrant question is highly controversial among economists but there seems to be a narrative coalescing- that low-skill immigrants may not hurt the economy that much (Or, in some cases, expand it).

PART TWO BELOW, USED TOO MANY LINKS AND IT TOOK ALL THE CHARACTERS

[–]prillin101Fiat currency has a 27 year lifespan[S] 41ポイント42ポイント  (6子コメント)

Government Debt

One-time 14% tax on wealthy to pay down national debt. (Jun 2015)

If debt reaches $24T, that's the point of no return.

Ignoring the fact that a wealth tax would likely cause one of the largest economy-wide devaluation of assets ever witnessed as the government or people (depending on who is the one responsible for the selling) attempts to all sell their wealth at the same exact time, the government debt is currently a non-issue.

To quote /u/Integralds:

  1. So there's demand for US debt. But there's also demand for corporate debt (commercial paper). Google sells debt, just like the US Treasury. So what distinguishes US government debt from other kinds of in-demand debt instruments? The US government issues debt denominated in US dollars. In addition, the US government (via the Fed) is able to print US dollars.

That is, the US government issues debt denominated in a currency that it also issues. That's nontrivial, because it means that in a worst-case scenario the US government can always print currency to pay back its debts. There is no reason in principle that the US should default. Yes, paying off debt with newly-minted currency (called "monetizing the debt") likely leads to a loss of confidence, inflation, and other bad outcomes; it is a worst-case scenario, but it does matter.

  1. Caveat: #2 leads me to the recent debt ceiling/default issue. There are other things going on here. The Fed is independent of the rest of the government precisely so it doesn't print money to pay back US debt. Yes, that means #2 is less of a factor than it otherwise would be, but #2 continues to run rampant in popular accounts of "why government debt is different." So you have reason to think #2 is not the main thing going on here, regardless of what you might see in /r/politics.

  2. So the fact that the US prints debt in its own currency should be discounted due to the independence of the Fed. Why else is government debt different from commercial paper? The government is a large player in the economy and has noticeable effects on aggregate demand. Individual households and firms do not have that luxury. What that means is that, for you, interest rates are givens; for governments, interest rates are something that can vary depending on how much the government itself spends.

To speak in jargon for a second, households exist in partial equilibrium while governments exist in general equilibrium. That's the basic reason that the government is not a household and why government debt is not like household debt. When times are bad, and the government borrows in order to stimulate the economy, it's possible for output to rise and for, on net, debt/GDP to fall. (Though I don't really want to talk about stabilization policy, and especially fiscal stabilization policy, unless someone forces me to. Let's focus on longer-run issues first, they're less controversial.)

Denying Climate Change and the EPA

Cut the EPA; what they do is a disgrace. (Oct 2015)

Climate change is a hoax. (Jun 2015)

I'm not going to bother citing climate change studies it is a proven fact, so I'm going to focus on the effectiveness of the EPA and the social costs of pollution.

The best way to illustrate the social cost of pollution is an example. Imagine you live in a small agricultural town, and a few months back there was an expansion of industry in the area- a small industrial park filled with light industry. You and most of the town live just about a mile out, downstream from the industrial park. When the industrial park and the coal plant inevitably pollute the river, they're not going to be the ones paying for the costs. The murky dirty river will directly lower property value of home owners, potentially pose a threat to citizens who may use the river for various purposes via sickness and illness, or render the river unusable as a future water source for the town forcing them to extract from a more expensive area in the future.

All of these costs are not borne privately by the factory, but socially by the taxpayer or society. The social cost of carbon is just something like this except on a global scale via climate change and air pollution (Beijing Smog).

The social cost of carbon is high, with the four SC-O2 costs being $14, $46, $68, and $138 per metric ton of CO2 emissions in the year 2025 (2007 dollars). Some sort of government action is necessary to preserve the Earth.

The EPA is also a major net-benefit to society, for example just look at their emissions trading program (Cap and Trade, which Trump opposes).

Free Trade

Take jobs back from foreign countries to lower unemployment. (Aug 2015)

20% tax on all imports (2015)

Mercantilism is one of the worst possible economic policies one could suggest. NAFTA, which Trump demonizes, was a resounding success for both Mexico and the US. Free trade is welfare improving, but complaints of free trade destroying the economy are simply overstated..

But, however, there is a legitimate complaint to free trade that Card really hit home with recently. The fact that the bottom 20% of society actually loses out from free trade, while the remaining 80% directly benefits. The poor do lose in the end from free trade because they have zero human capital and their jobs are being done in cheaper nations (China, as Card demonstrated). This does not mean that free trade is a failure however, it simply means KH compensation is required. Taxing the winners and using it to fund Trade Adjustment or further education funding in poor areas for example are easy ways around this- not ending free trade.

Unemployment is 20%

Real unemployment rate is 20%; don't believe 5.6%. (Jun 2015)

"I've seen numbers of 24 percent -- I actually saw a number of 42 percent unemployment. Forty-two percent." He continued, "5.3 percent unemployment -- that is the biggest joke there is in this country.

No, it's not.

Not going to bother making a lengthy paragraph with multiple source, it's just not.

Minimum Wage

Don't raise minimum wage; it makes us non-competitive. (Nov 2015)

Don't raise minimum wage, but create more opportunities. (Aug 2015)

Too lazy to finish the last section, someone do it then I'll edit it in. Thanks!

Special Thanks:

/u/t0t0t0t0t0t0 for this post.

/u/usrname42 for this post.

/u/Integralds for the supplementary text on the government debt section

/u/MoneyChurch for this post.

[–]StroodlingDoes this mean I should buy gold? 12ポイント13ポイント  (0子コメント)

I'm going to attempt to help with the minimum wage section:

Common arguments in favor of minimum wage tend to appeal to society's (or firms') supposed obligation to workers to provide workers with a living wage, citing that a moral society would want to provide for its working poor. Leaving this aside, one could argue that the costs to government (in the form of welfare, crime prevention, etc.) outweigh the losses from a minimum wage, such that the minimum wage, even if it destroys some jobs, could be a Kaldor Hicks improvement.

However, we don't need to assume that the minimum wage represents a welfare loss at all, even if it sets a price floor. Economic models that include employment frictions or monopsonic firms can both lead to socially non-optimal wage levels in the absence of minimum wages.

For the case with monopsonic firms, the wage offered by each firm in the market includes a markup factor scaling in N number of firms, that converges to 0 as N-->∞. Low-skilled workers likely cannot search for work among firm that are reasonably approaching this limit, and it is therefore likely that the price of their labor will be marked down by the market power of firms. Setting a minimum wage helps prevent this, by ensuring that hiring decisions cannot underprice labor. Here is a cached link to Aaronson and French's 2006 paper which proposes a model of monopsonic firms which demonstrates this. (You can also just Google "Aaronson and French 2006" for the paper, but you get a pdf so I can't link it)

The second case involves the involvement of market frictions, where both unemployment and vacancies exist simultaneously within the economy. For this, we can use the Diamond-Mortensen-Pissarides Model, which uses markets with search costs to introduce search frictions. In this model, we can define 2 Bellman equations for both the firm and the worker for states of the world where vacancies exist/are filled & workers are employed/unemployed. Here, search frictions mean that filling a job results in surpluses for both workers and firms, with the total social surplus equal to the sum of the surplus for each of the firm and the worker between the employed/filled vs unemployed/vacant state of the world. If this surplus is positive, the social surplus is shared between the firm and the worker via a Nash Bargaining condition, where relative shares of the surplus accrue to either the worker or the employer. We might suspect that low-skilled workers have worse Bargaining skills/positions from which to bargain, and therefore are less likely to retain wage benefits from the surplus generated from their labor, particularly when negotiating with much larger firms. While social optimality may be maintained for any level of bargaining strength, it is reasonable to think we may want workers to retain some of this surplus. Setting a minimum wage can guarantee this occurs by place min wage between the reservation wage and the wage at which the firm is indifferent to hiring - helping workers without eliminating any jobs, even prospective future ones. A model so good Diamond, Mortenson, and Pissarides got a nobel prize for it.

Also, we can back up these models by examining a bunch of papers which show very little job loss from minimum wage hikes, such as the classic Card and Krueger 1994, or the recent Haraztosi and Lindler 2015 which lets you look at Hungary even.

[–]Trepur349TPP $hill 2ポイント3ポイント  (0子コメント)

slight nitpick. We both agree that Trump is wrong on free trade, but I think he's more wrong then you give him credit.

The fact that the bottom 20% of society actually loses out from free trade, while the remaining 80% directly benefits.

I disagree, not all unskilled/low-skilled labour can be offshored and the lower class are the ones who benefit the most from free trade for two reasons:

  1. They're the ones who benefit the most from decreasing prices (which free trade does) as they're the ones who can least afford current prices.

  2. The most traded goods make up a higher percentage of low-income budgets then high-income budgets.

As a result, Fajgelbaum and Khandelwal (2014) estimated that if we ceased all trade, the bottom 10% would lose 62% of their purchasing power while the top 10% would only lose 3%. Now a 20% tariff wouldn't be extreme as ceasing all trade, but it still goes to show that free trade benefits the lower class.

edit: Fixed a formatting issue.

[–]jsmooth7 7ポイント8ポイント  (2子コメント)

This is an impressively detailed breakdown. You should post this to /r/TrumpPolicy too!

[–]prillin101Fiat currency has a 27 year lifespan[S] 2ポイント3ポイント  (1子コメント)

Thanks, I'll do that now.

[–]jsmooth7 1ポイント2ポイント  (0子コメント)

Awesome. This is exactly the sort of content I had in mind when I created the sub.

[–]smurphy1What is fiat? Baby don't tax me. 0ポイント1ポイント  (0子コメント)

Caveat: #2 leads me to the recent debt ceiling/default issue. There are other things going on here. The Fed is independent of the rest of the government precisely so it doesn't print money to pay back US debt. Yes, that means #2 is less of a factor than it otherwise would be, but #2 continues to run rampant in popular accounts of "why government debt is different." So you have reason to think #2 is not the main thing going on here, regardless of what you might see in /r/politics.

This is not exactly correct. It's true that the Fed cannot buy bonds directly from the Treasury but it can buy them in the secondary market. Since the overnight rate cannot be below the rate on short term treasuries if there are not enough buyers of treasury bonds and the rate on those bonds goes up it will bring the overnight rate up with it. As long as the Fed is trying to maintain the over night rate within a specific band it would have to act if the rate on short term treasuries rose too high by buying treasuries from the secondary market until there is enough demand for the treasuries at roughly the desired rate. In this manner the Fed is effectively "monetizing the debt" albeit indirectly.

[–]he3-1 14ポイント15ポイント  (7子コメント)

This sub in general seems to follow the conventional wisdom that the optimal tax rate for capital gains is zero, but I don't think that is true. Unlike the corporation tax, the empirical evidence of the 0% capital gains rate is not as strong as it was in the 90's. The infamous Piketty 2012, a 2009 JEP study, and a Saez study give contradicting results to the conventional wisdom popularized in the 90's, leaving it controversial in my eyes.

The Chamley/Judd results have been demonstrated to be robust when considered across real world tax changes rather then just inside the model. Conesa et al's model is either wrong or equilibrium takes longer then 46 years.

The optimal rate of capital taxation appears to be between zero and eight percent. Even if it is gt zero compliance costs may mean its simply easier to look to collect the revenue elsewhere.

From this link-salad of studies you can see that the low-skill immigrant question is highly controversial among economists but there seems to be a narrative coalescing- that low-skill immigrants may not hurt the economy that much (Or, in some cases, expand it). I could easily find about 10 more studies going either way, but I feel you get the idea.

The proposed negative effects are relatively small.

But, however, there is a legitimate complaint to free trade that Card really hit home with recently. The fact that the bottom 20% of society actually loses out from free trade, while the remaining 80% directly benefits.

The losses are near the middle not at the bottom (skilled trades). Its entirely within our power to manage these, its a policy failure (not trade) that we don't.

[–]alandbeforetimeWe should abandon fiat currency and use 1982 Bordeaux 6ポイント7ポイント  (0子コメント)

Question on this part:

The losses are near the middle not at the bottom (skilled trades).

Most studies I've seen cite non-skilled labour as the most impacted employment demographic by free trade policies. Why do you say that losses are near the middle? Due to government support programs for those at the bottom, but not for those who are just slightly outside the range of assistance?

[–]tayaravaknin 2ポイント3ポイント  (0子コメント)

The optimal rate of capital taxation appears to be between zero and eight percent. Even if it is gt zero compliance costs may mean its simply easier to look to collect the revenue elsewhere.

Is there a review of the literature published that suggests this, and why?

[–]prillin101Fiat currency has a 27 year lifespan[S] 4ポイント5ポイント  (3子コメント)

The Chamley/Judd results have been demonstrated to be robust when considered across real world tax changes rather then just inside the model. Conesa et al's model is either wrong or equilibrium takes longer then 46 years. The optimal rate of capital taxation appears to be between zero and eight percent. Even if it is gt zero compliance costs may mean its simply easier to look to collect the revenue elsewhere.

Do you have anything more on this? Like an article or something? Would like to read about it.

The proposed negative effects are relatively small.

That seems to be the case, but Borjas' studies are an outlier in the sense they all propose fairly large

The losses are near the middle not at the bottom (skilled trades). Its entirely within our power to manage these, its a policy failure (not trade) that we don't.

Is it? I thought Card demonstrated the poor lose out, and the poor generally are not medium-skilled. I might be wrong, but that's what I gathered from the commentary on the sub atleast.

[–]FatBabyGiraffeWhat do you want it to be? 1ポイント2ポイント  (2子コメント)

http://hassler-j.iies.su.se/COURSES/DynPubFin/Papers/Chamley86.pdf

http://eml.berkeley.edu/~saez/course/Judd_JPubE(1985).pdf

[–]prillin101Fiat currency has a 27 year lifespan[S] 1ポイント2ポイント  (1子コメント)

Those are all old papers though, and as I point out in the post recent models just from a few years ago show different results.

[–]Mundlifari[🍰] 1ポイント2ポイント  (0子コメント)

The Chamley/Judd results have been demonstrated to be robust when considered across real world tax changes rather then just inside the model. Conesa et al's model is either wrong or equilibrium takes longer then 46 years. The optimal rate of capital taxation appears to be between zero and eight percent. Even if it is gt zero compliance costs may mean its simply easier to look to collect the revenue elsewhere.

Wouldn't a low corporate tax rate carry huge risks when it comes to wealth concentration?

Someone with a worth of say 1 billion will have most of that invested and only requires a tiny fraction of his wealth for expenses. Which means he can keep his money in some parent company, which always re-invests in other businesses. This gives the 1% (for lack of a better word) a big advantage and will likely concentrate wealth even more on some few people. At least that's the outcome I would expect.

[–]OldSeaMen 0ポイント1ポイント  (0子コメント)

There is more than just affect of wages from the immigrants of Mexico. They are also gaining social benefits which they do not have to pay for being an illegal immigrant. They can use our public schools without paying taxes and hospitals can't turn them away no matter what. Both of these factors will increase cost to legal citizens. How much... I am not sure, but its a common point I hear living in Texas.

[–]Trepur349TPP $hill 0ポイント1ポイント  (0子コメント)

The median US income is around $51,000, most Americans will have the bulk of their taxes levied at the tax rates of the bottom two (0% and 10%).

Actually that's median household income not median personal income. So after income splitting that means almost half of households would pay close to 0 income tax.

So to borrow from Romney, a society where 47% of people don't pay any taxes cannot function.

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