The firm Moody's Analytics released a report Monday detailing some possible economic and fiscal impacts of a Donald Trump presidency -- based on policy proposals offered by Trump so far in the campaign.
The 15-page analysis, which compares current fiscal trends to three different scenarios of a Trump presidency, indicates that the U.S. would have diminished trade and immigration under Trump's policies and less direct foreign investment in the U.S.
"The upshot of Mr. Trump's economic policy positions under almost any scenario is that the U.S. economy will be more isolated and diminished," the report states.
Unfortunately Moody's did not release a similar study on Hillary Clinton's economic policies to compare and contrast. Moody's stated a study on Clinton's economic policies will be coming as well.
The Moody's analysis looks at a scenario in which Congress greenlights most of Trump's stated economic policy positions, as well as scenarios in which Congress approves a more modest version of Trump's policies, and a third scenario in which Congress remains more opposed to Trump's plans to overhaul taxes or boost spending.
A main driver of the analysis revolves around how Trump's tax policies would function. Trump's proposals would lower the top marginal rate from 39.5% to 25%, lowering capital gain and dividend tax rates and reducing the corporate tax rate to 15% from 35%, but would also repeal most tax breaks for businesses.
If all of Trump's tax proposals were greenlighted, the end result would translate into lowering tax revenues by $9.5 trillion over 10 years, or roughly $950 billion a year on average.
Paying for such tax cuts would require cutting government spending by 20% a year, but Trump also has called for increased military spending, no cuts to Medicare or Social Security, and more spending on programs for veterans. Then there would be costs associated with an immigration policy that includes tripling the number of Customs Enforcement agents from 5,000 to 15,000.
He also plans on having Mexico pay for the costs of building a wall between the two countries.
Trump also has called for a 45% tariff on imports from China and 35% tariff on products imported from companies that outsource U.S. jobs to Mexico. If those tariffs were to go into effect, U.S. consumers would see the prices for imported goods increase 15%.
What is unclear from those tariff proposals is the response that would come from U.S. trading partners, Moody's notes. The U.S. exports roughly $100 billion in goods to China and $250 billion to Mexico. If China and Mexico respond in-kind to Trump's tariff plan and the U.S. dollar rises, then exports could fall by nearly $85 billion.
If everything Trump proposes at face value were to occur the U.S. would see a boost in gross domestic product in 2017 of 3.7%, but then GDP would decline with the country possibly slipping into recession by 2019 as more policies take root.
If Congress went along with Trump's proposals, the federal budget deficit would grow from roughly $640 billion in 2016 to $1.1 trillion next year, and growing every year after. The national debt would approach $21 trillion by 2020. Under current policies, the budget deficit would grow from $640 billion to $940 billion by 2020 and the national debt would be about $17.5 trillion.
Unemployment would still rise and GDP would grow slower than current growth. Battles would still revolve around Trump's immigration policies and the trade relationship with China and Mexico.
Under the second scenario, "Trump lite," the costs of policy shifts would be closer to $3.5 trillion in lower tax revenues over the next decade, but the impacts of a recession as early as 2018 would be more severe.
The unemployment rate would top 8% in 2019 and continue to rise through 2021, barring a rapid policy response. The reason the economic effects would be more jarring is because the stimulus from tax cuts would only modestly offset some of the shocks to the economy from the trade battles facing the country. To combat recession Trump would have to support a Fed policy on quantitative easing.
"In some respects, this scenario is more debilitating than the previous scenario in which Mr. Trump gets all that he wants," Moody's notes. "Cushioning the economic blow from his immigration and trade policies in the previous scenario is the fiscal stimulus provided by the massive tax cuts. The tax cuts and the stimulus in this scenario are much smaller."
Under a third scenario, Trump becomes president, but Congress largely balks at his agenda. This scenario seems more likely, Moody's notes, because "It is difficult to envisage any Congress acquiescing to much larger deficits that would result from Mr. Trump's proposals."
Congress would go along with tax cuts -- to a point -- but demand they remain more budget neutral. The economy avoids a recession, but growth slows down early in Trump's term and job growth comes to an early standstill early in his presidency.
Under this third scenario, the impacts of Trump's immigration proposals are reduced, but roughly 3.7 million people leave the country. Additionally, China and Mexico do not retaliate against the U.S. because Congress becomes placated by some Chinese moves to liberalize its currency, as well as the reduction in undocumented workers in the U.S.
Moody's notes that Trump has intimated that his policy positions can be considered an opening negotiating stance that could change as he works with Congress. Still, Moody's states that Trump's economic policies are "fiscally unsound" and would result in larger budget deficits with little boost for the economy.
Politico stated in its article on the Moody's report that the Trump campaign did not respond to questions about the analysis. http://www.politico.com/…
The full report by Moody's on Trump can be found at www.economy.com
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