Donald Trump speaks at the Economic Club of New York in New York, on Thursday. Photographer: John Taggart/Bloomberg
Republican presidential nominee Donald Trump has said he would eliminate trillions of dollars in taxes as president, and use a combination of reduced federal spending and increased economic activity to make up the budget shortfall.
"It will be deficit neutral," Trump said of his plan last week, according to a copy of his remarks at the Economic Club of New York. "It will be accomplished through a complete overhaul of our tax, regulatory, energy and trade policies."
Those claims have been greeted with skepticism. Most economists believe the plan would require the government to borrow much more to replace the taxes -- including one of Trump's own economic advisers.
Tom Barrack, the adviser, said last week that Trump's policies would increase the national debt by roughly $10 trillion -- and, he said, that would be a good thing. More borrowing is exactly what the economy needs, Barrack argued, as reduced taxes and increased federal spending would prompt companies to build factories, boost hiring and expand production.
[What a Donald Trump presidency would do to the global economy]
Though the recession ended seven years ago, the recovery has been weak, some economists say, with a large percentage of Americans out of the workforce and sluggish growth in economic output. They say the economy is vulnerable to another downturn, and Barrack thinks an infusion of cash from the government would put the economy on more solid ground.
Paying down the debt will be important in the future, Barrack added, but for now, he argued it makes sense for the government to borrow more. The country's debt would remain manageable, relative to the size of the overall economy, according to Barrack.
"In the interim, it makes sense, right? You reduce corporate taxes. You get rid of regulation. You invest in infrastructure. You have fiscal stimulus, and you're going to increase from 20 trillion to 30 trillion in debt," said Barrack, the founder of the Los Angeles investment firm Colony Capital, in an interview last week with CNBC. "Still, our debt to GDP will be the lowest in the world."
He then implied that, in any event, the government could always print more money in order to cover its debts, since the bonds are not backed by any collateral.
"It's unsecured debt in any event, right? So I think in the interim it makes a lot of sense," said Barrack.
According to Barrack, monetary policy -- reduced interest rates intended to stimulate the global economy -- might not be enough to sustain the recovery, and governments will have to spend more.
"You're seeing around the world central banks starting to say maybe monetary policy isn't the answer," he said. "We may need to step on the fiscal policy bandwagon, and I think that's what we're on the edge and the precipice of seeing."
Many economists would likely agree with Barrack's views. Notably, former Treasury Secretary Lawrence Summers has written that the global economy has entered a period of what he calls secular stagnation, meaning that interest rates will remain near zero for the foreseeable future and that major new public investments are the only way to overcome the economy's persistent lethargy.
[Larry Summers: I’m more convinced of secular stagnation than ever before]
Summers, however, served under former President Clinton and later advised President Obama. While he and other liberal economists might have received Barrack's arguments sympathetically, his comments were at odds with a typically conservative view of the economy, especially his cavalier dismissal of the national debt as "unsecured."
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