Trump's Shotgun Marriage of Populism and Supply-Side Economics

Donald Trump reads the polls closely—he’s been talking about them for the last 14 months—and he can tell they’re not good right now. “I don’t know why we’re not leading by a lot,” he lamented in Florida last week. “Maybe crowds don’t make the difference.”

It’s not just that crowds don’t say much on their own. It’s also who’s in the crowds. In particular, the Republican presidential nominee can see that while he does well among white working-class men, he’s weak in many other demographics. That’s a useful way to think about his major economics speech, which he delivered at lunchtime Monday at the Detroit Economic Club. (Weirdly enough, that’s also the site Jeb Bush chose for a major economic address last year; Emily Badger notes how the right likes to use Detroit as a backdrop and shorthand for all that they feel ails the American economy.)

The economic platform that Trump proposed amounts to an awkward shotgun marriage of the economic populism that has been his trademark since he entered the race, some of which runs directly counter to conservative economic orthodoxy, and a few well-worn conservative proposals on taxes and regulations. With several policies, Trump seems to be trying to reach more affluent, college-educated whites, and especially women, with whom he is weak, but also to reassure and woo wealthy members of the donor class.

As usual, Trump argued against free-trade deals like the Trans-Pacific Partnership, promised new tariffs, and vowed to repeal the Dodd-Frank financial-reform act. Trump also claimed that although Clinton has announced she opposed the TPP, she will back it once in office—a claim bolstered by comments from Clinton ally Terry McAuliffe. While calling for the repeal of climate-change regulations imposed by the Obama administration, he also complained that trade deals were unfair because, he said incorrectly, China does not have environmental regulations.

But there’s quite a bit of new material in the speech as well. Among the most interesting bits is his proposal to make the average cost of child care fully tax deductible. That’s an idea that outflanks Democrat Hillary Clinton from the left, offering a more generous proposal than her own, which is to cap child-care costs at 10 percent of family income. During a speech at the Republican National Convention in Cleveland last month, Trump’s daughter Ivanka mentioned a list of policies—like paid family leave, equal pay, and affordable child care—that raised eyebrows, both because they fit more with the Democratic platform and because Donald Trump had not previously discussed them. On Monday, Trump specifically credited her for helping inspire the idea.

A child-care deduction seems aimed at women, and particularly more affluent ones, who have voted Republican but have abandoned Trump more or less en masse. Most lower-earning Americans take a standard deduction; it’s wealthier ones who are more likely to itemize. If Trump were trying to help mostly the working class, he would be better served to propose a tax credit, rather than a deduction. The Associated Press notes that 40 percent of Americans don’t even owe income tax at the end of the year. Details of the plan weren’t immediately available, although one aide told the AP that it would include an income-cap on eligibility.

In another populist-themed move, Trump called for the elimination of the carried-interest loophole, in which high earners are able to treat income as capital gains for tax purposes. (As Alec McGillis points out, this is often called the hedge-fund loophole, though other sectors like private equity use it more.) In demanding that the loophole be closed, Trump joins Hillary Clinton, who also wants it closed.

But much the rest of Trump’s speech was targeted not at the average American but at corporations and high earners, with many of the ideas borrowed from the standard Republican playbook of supply-side economics. (Trump specifically positioned himself as continuing Ronald Reagan’s legacy.) For example, he proposes eliminating the estate tax, which would not help many blue-collar workers, though it might benefit Donald Jr., Ivanka, Eric, Tiffany, and Barron.

On the tax front, Trump would reduce the number of income-tax brackets from seven to three. He previously proposed brackets of 0, 10, 20, and 25 percent, but now says he will follow Speaker Paul Ryan’s scheme of 12, 25, and 33 percent. He would also slash the corporate tax rate from 35 percent to 15 percent. These, too, fit with standard conservative proposals to cut taxes, especially for higher earners, and to stimulate business by reducing taxes. (Curiously, a tax plan that was posted on Trump’s website as recently as Sunday has since been removed.)

Likewise, Trump promised to cut down on regulation, a proposal that straddles income levels, because it’s designed to appeal to both middle-class business owners and to major corporations. In an unwritten aside in his speech, Trump asserted, nonsensically, “You cannot ever start a small business under the tremendous regulatory burden you have today.”  In particular, he said he would impose a moratorium on any new financial regulations until the economy reaches some unstated level of improvement. The mechanics of such a moratorium are a little murky. As the conservative law professor Jonathan Adler points out, it would probably bump up against statutory deadlines instituted by Congress. It’s also somewhat at odds with his charge that Clinton is “owned” by Wall Street. Clinton has proposed stricter regulation of the financial sector.

Although Trump has been described as the candidate of the white working class, Nate Silver points out that he also does very well with more affluent white voters, especially males. Pushing forward with these more traditional right-wing proposals could help firm up support among any of these voters who might be wavering on Trump after his atrocious last 10 days. They might also go some way to bringing wealthy donors into the Trump tent. Although he reported a larger-than-expected fundraising haul in July, Trump continues to struggle with larger donors and bundlers.

Trump’s economic proposals face a familiar challenge of Republican economic proposals: They are conservative in popular political parlance, but they’re not necessarily fiscally prudent. In a December analysis of Trump’s economic proposals up to that point, the nonpartisan Tax Policy Center found that he would reduce federal revenue by $9.5 trillion over a decade. “The plan would improve incentives to work, save, and invest,” the center reported. “However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80 percent of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts.” He has promised to do all this without touching entitlements—a break with previous Republican candidates, and one that has broadened his appeal. Add in elements like a child-care deduction and the revenue problem only gets trickier—although more detailed plans will be needed to gauge the impact of his revised proposals.

Covering child care edges into the territory staked out by the so-called “reformicons,” conservatives who have tried to push the GOP to focus more on helping the middle class and working class through targeted tax breaks. But the broad tax cuts Trump wants at the top don’t match, and the staunchly anti-Trump (and reformicon-friendly) conservative journalist Ross Douthat tweeted that it’s “increasingly clear that Trumpian economic policy will have the worst populist ideas and the worst elite-conservative ideas.”

Figuring out how to square his economic populism with a passel of proposals calibrated to help the wealthiest Americans is a challenge that Trump hasn’t quite mastered yet. Meanwhile, his standard doom-and-gloom read on the American situation sits uneasily with the realities of the U.S. economy. Although any analyst would say that the U.S. recovery from the 2008 recession has been slow, more recent statistics paint a rosier picture. Last Friday’s jobs report was the second month of large employment gains, and the hires came with quickening wage growth, as well. (On Monday, Trump  called the unemployment rate “one of the biggest hoaxes in modern politics”; while some economists argue that the standard rate doesn’t tell the whole story, Trump’s suggestion that the real rate could be as high as 42 percent has been thoroughly debunked.) An improving economy tends to be a decisive factor in helping the incumbent party hold the White House—just another one of the many political obstacles facing Donald Trump.