Program trump and Clinton are a little different – they are, in fact, offer to go on the same vicious circle, but in different directions.
After uninteresting elections in Russia are following the U.S. presidential election, which promises to be much more exciting. For a long time already, probably since Reagan, the candidates were not so different in their positions regarding the future of the American economy. And certainly a long time one of the candidates not offer such a broad, radical and at the same time such a blur in fact, the economic reform package as the one that offers the Donald trump.
Low taxes
Offers trump expressed in General terms in Detroit on 8 August and more details during a speech at the Economic club in new York in September, declaring the three main objectives that are understandable and desirable for the “average Americans” – families with an annual income of up to $65-70 thousand. Trump promises to increase household income, reduce unemployment, which is particularly high in large industrial centers, and accelerate the growth of us GDP.
To increase household income trump proposes to reduce taxes on individual income. Reducing unemployment must be by reducing taxes on profits of American companies, and by protective duties on imported goods and an additional tax on American manufacturers, placing production abroad. Finally, says trump, all these measures should lead to GDP growth on average by 4% a year (in a speech in new York, trump said about 3.5%).
Trump claims that the average American will get an extra $1,5–2 thousand a year by reducing taxes on income. This statement is quite controversial, and it is believed that the main benefit from the tax breaks will receive 1% of the richest Americans, while the average gain to check low-income Americans will not exceed $209 per year.
Most likely, it will – in his last speech trump has already said just about reducing the highest tax rate – from 39.5% to 33%, and officially announced them the plan is slightly different from the Clinton plan in all but the top rates. That this rate worries new York billionaire, whose advice on the economy 9 out of 13 people – multi-millionaires, the owners and managers of large investment, private equity and industrial companies, is not surprising.
But even if you believe the public accounts of trump and to assume that revenue growth will be distributed evenly, taking into account the fact that in the US today average annual dohadalas more than $32 thousand, due to the reduction of income taxes the average American will grow less than 6%. If the statistics of the ratio of consumption and savings does not change, this increase will lead to increased consumption by households by about 4% – is the growth of single, his stream of GDP (as always for a single change) will come with damping, with a multiplier of no more than 0.5 – that is, in a year it will have less than 2% in two years 1% growth and so on.
However, in the model of “the public state” we have to take into account the shortfall in the budgets of all of the amounts that households received, and remember that the us mostly deficit budgets. Thus, the total change in consumption is equal to about +4% (household) to 6% (budgets) = -2% of the household income to change, and the budget deficit will increase by approximately 3% of GDP. In the win, no doubt, will remain the richest Americans, increase their income, almost all will go into savings, which will rise considerably. The budget will suffer – he will lose about $500 billion of the $3.5 trillion of revenues.
Anti-China duties
Yes, trump offers to Fund the budget, breaking the free trade agreement and imposing high duties on import of goods. But the budget is unlikely to help: Americans spend only 7.3% of their spending on goods produced outside the United States (in reality, they pay 11.5% of their total costs, but approximately 36% margin American transportation companies and retailers). On China, which trump was not particularly fond of, this amount is very tiny figure is about 1.2%. So even if high import duties will significantly alter the price of Chinese goods, American consumers are unlikely to actively respond.
What happens if the US imposes a 40% tariff on Chinese goods? From the point of view of the cost of American production is almost nothing: it will increase by roughly 0.3%. From the point of view of final consumption is also almost nothing: consumers are likely to absorb most of the growth in the price, so that Chinese and other foreign producers will be forced to reduce the price to maintain the same levels of sales.
The effect on producers of reducing prices by 10-20%? They will get less profit, the Chinese economy will slow down. The prices of goods that the United States supply to China fall slightly. Oil prices may decline slightly, which will lead to a decrease in revenues of the us oil industry and perhaps even to the decline in domestic production of oil (American oil industry is very sensitive to the market price). This will result in a decrease in the production of drilling equipment, the reduction of jobs in the United States. The accumulation of reserves by China will go slower, the cost of borrowing for the US will rise, it will place an additional burden on the budget.
A tax on output
It is not clear that the idea of an additional tax on companies manufacturing their products abroad. To levy tax on foreign legal entities, the US can not physically. In the end, if trump decides to levy a tax at the level of the head office of the company Ford Motors (trump particularly mentioned in Detroit, accusing the Mexican plants are Ford that they are “robbing” the U.S. labor market), then they in return will allocate their foreign production in a separate company with the same shareholders, this will lead to increased costs, decrease in revenues of the American corporations received abroad, but not by higher tax revenues and the transfer of production to the United States.
USA, where strong unions labor costs for manufacturing companies increased from 1990-ies several times (Ford Motors today, the average cost of man-hour in the United States exceeds $60, and in Mexico less than $8), are unlikely to bring offshore production back. Given the fact that the cost of labor is slightly more than half of the cost of engineering, operating to equalize the cost of Mexican and American cars can not even import duty on 50%. But there are still fixed costs that are already made in Mexico, rental costs and other, which in Mexico is also lower.
In addition, offshore production of American builders supply products not only in USA but throughout the world. To curtail them in any way disadvantageous. But if such a fee will be introduced, some offshore U.S. producers are likely pereorientirovanija to other markets, giving the US market to its competitors who already pay fees and/or willing to tolerate losses, primarily to the Japanese manufacturers.
And finally, American automakers and so produce the vast majority of cars for the domestic market is not in Mexico and in the United States, and their current investment in expansion of production within the US is 3-4 times higher than outside. The whole car imports in the United States exceeds $150 billion per year, and the share of the U.S. manufacturers accounted for almost a quarter of this flow. Duties with it will be negligible for the American budget, but for car buyers, which, of course, will pay part of the fees due to the growth of prices on the market, they can be significant – reduced sales, and hence profits of American companies.
From different sides of populism
In the end, the program trump’s little different from any other economic program, who enthusiastically offers to treat the investigation because they do not understand or believe in the possibility to cure the cause. You can reduce taxes and increase the budget deficit – will still have to withdraw these funds from taxpayers in another way (inflation, rising prices, reduced public consumption). And you can, wants Clinton to increase taxes and reduce the deficit. Still higher taxes will lead to a drop in base and the deficit will remain the same. In this sense, for the United States program trump and Clinton frustratingly little different – they are, in fact, offer to go on the same vicious circle, but in different directions.
The problem of the American economy are similar to those faced by other developed economies in democratic countries of the XXI century (in the US it is less pronounced than in, say, Western Europe). This is a problem of economic populism. In the United States care about the rights and opportunities of voters turned into pandering to his needs, regardless of his willingness to contribute adequately to the economy.
A powerful industrial unions are making unreasonably high salaries. Union bosses are accountable to their electorate, forgetting to mention the indirect effect of reducing the number of jobs. The unemployed also vote and benefits growing in line with promises. Grow benefits – growing demands of the candidates for the job. But on benefits need money and increasing taxes. Taxes are growing, but the voter against their growth – and there are many exemptions and tax subsidies: more than 12% of the total taxable income back into the pockets of the taxpayers in the form of deductions. Such a system benefits need to administer, you need the appropriate apparatus, which also costs money. But that is not enough; voters want benefits and subsidies, regardless of their work status and vote for those who promise.
As a result, when just over 10 million unemployed, nearly 50 million Americans in 2013, get food stamps, over 40 million US homes purchased with government-subsidized mortgages, health care, social insurance and other cover most Americans – in 2013, about 49% of U.S. residents used these programs more than once every three months. Such subsidies looks like a redistribution of funds from too rich to too poor, but in practice, more affluent Americans are getting even more benefits from tax deductions and subsidies and socialization of the economy becomes a tax on everyone in favor of a small number of persons with disabilities and a large number of those who do not want to work and/or not able to work efficiently.
Reasons why people are not able to work effectively, a lot, but at least one of them is also from the region of the trade Union system. The teachers Union has received the control over the processes of dismissal and the recruitment and blocked opportunities for most children to choose a school: in the United States more than half of children after elementary school have problems with reading and writing. Families with average income (the basis of the US economy) are forced to spend more on the education of children (more and more families send their children to private schools due to problems with the quality of public schools, more expensive College tuition) and parallel to the taxes to Fund the subsidies the growth of prices for education – this significantly reduces their consumption and indirectly has the same producers who cut jobs.
This vicious circle can be broken only one way – a return to the natural regulation of markets on the basis of balance of supply and demand, including labor market.
The good news is that the current problem the USA is not very heavy. The United States remains an economy with very high per capita GDP and the fastest growth of per capita GDP among the major economies of the world (in absolute terms), and the crisis of 2008 showed that the adaptability of the American economy is very high. The bad news is the same: until the problems are really of a serious nature, there is no hope that someone decides to really do them real reasons to make a populist face on a not too bad game is much more profitable.
