By Russ Banham
Oct. 17, 2016
As you may be aware, this year’s presidential election campaign is like no other. We’ve heard a whole lot of buzz about the candidates’ temperaments and character, about demagoguery and email servers, about bigotry and speaker fees—not to mention marital fidelity, reality TV, pantsuits, and hand size.
What we haven’t heard so much about is the impact that Hillary Clinton’s and Donald Trump’s policy proposals could have on business. However, a measured look at these plans reveals two starkly different visions of the country’s commercial future.
To analyze these visions, CFO reached out to more than a half-dozen economists of wide-ranging political leanings. We asked them to contrast the candidates’ positions on corporate taxes, global trade, health care, immigration, Wall Street, regulation, and energy. Part of our thinking was that no issue exists in a vacuum; immigration policies, for instance, could affect business relations with Mexico, the domestic economy in general, and the labor market in particular.
In addition to offering up pros and cons of the nominees’ stances on the issues, the economists affirmed the difficulty of one party’s nominee achieving his or her agenda with a Congress potentially held by the other party. They further noted that there likely would be a delta between what the winning candidate says when running for office and does once in office.
Donald Trump is a tested CEO, but his policy positions are painted in broad brushstrokes rather than fine lines. Hillary Clinton has decades of experience in global and domestic policymaking, and while her positions are highly detailed, they’re also more cautious. In other words, Trump seeks huge change now, whereas Clinton prefers more nuanced and gradual change.
Still, both candidates have been criticized for abrupt reversals in policy. Clinton has veered left on some policies to appeal to disappointed supporters of Bernie Sanders. Trump has flip-flopped on taxing the wealthy, the minimum wage, and immigration, although the last appears to be a moving target.
In no particular order, then, here are the candidates’ respective positions:
Both nominees want to halt the trend of corporate inversions, whereby a U.S. company merges with a foreign one in a lower-taxed domicile and reincorporates the business there. The candidates agree that keeping the headquarters of U.S. multinationals in the United States would boost job opportunities and federal tax coffers. However, they differ on how to stem the tide.
Trump’s plan is to reduce the corporate tax rate from 35% to 15%. That would make the U.S. rate lower than that of most advanced economies. “If we had a 15% corporate tax rate, we would effectively become a tax shelter country, encouraging foreign companies to headquarter here,” says Tom Wheelwright, an adjunct professor in the masters of tax program at Arizona State University and CEO of accounting firm ProVision. “Ireland is at 12%, so we would be on par with them and returning jobs to the U.S.”
An influx of operations from overseas companies would spur domestic employment and related tax income, Wheelwright adds. “This is one area where Trump has a better handle on a critical problem than Clinton does,” he opines. Clinton wants to maintain the current 35% corporate tax rate and crack down on the corporate inversion problem administratively, penalizing companies that make the migrations.
“She has talked about adjusting the tax code to get rid of the incentives for companies to relocate overseas but has not provided a broad-based plan to dramatically lower corporate rates,” says Jim Pethokoukis, an economic policy analyst at the American Enterprise Institute, a conservative think tank.
Several economists agreed that the candidates are exceptionally careful when discussing taxes. “Trump wants to sharply cut the corporate tax rate but has not been explicitly clear on what sorts of tax deductions he would eliminate or cap,” Pethokoukis says.
Mark Fratrik, chief economist at research and consulting firm BIA/Kelsey, says that while Clinton will likely lower the corporate tax rate, albeit nowhere near Trump’s planned reduction, “she’s not in a position to advocate it. She knows she needs to satisfy the liberal wing of the party and is being very careful.”
Trump, too, is accused of playing politics. “I and many others doubt he will stick to 15%, which goes too far,” Wheelwright says. “Initially he was at 25%, which was Marco Rubio’s plan. That would accomplish the same purpose: sending a message to foreign companies to locate here. My assumption is that it will end up at 25%.”
According to another expert, neither candidate is seeing clearly on the tax question—although that expert’s objectivity may be questionable. “Given that the country is essentially broke, with spending and other entitlement obligations exceeding the present value of projected taxes by $199 trillion, we need to collect much more in taxes, not less,” says Laurence Kotlikoff, a professor of economics at Boston University who is running for president as a write-in candidate.
The nominees have extremely divergent views on global trade. Trump has charged that many longstanding trade deals have been detrimental to U.S. industry and the economy, whereas Clinton supports most trade pacts as they now stand.
However, she recently changed her position on the Trans-Pacific Partnership (TPP), a trade agreement among 12 Pacific Rim countries to lower tariffs and other perceived barriers to trade. While Clinton previously endorsed the TPP and said it could become the “gold standard” of trade deals, she now sees it curtailing domestic employment. (It may be relevant to note that Clinton’s previous competitor, Bernie Sanders, considered the TPP “disastrous.”)
Clinton now is having second thoughts about another big trade deal that she had supported as Secretary of State: the European Union’s Transatlantic Trade and Investment Partnership. “We’re not sure where she stands on these issues anymore,” says Dean Baker, co-director of the Center for Economic and Policy Research, a progressive, left-leaning think tank. “She’s had a different history on trade. Going forward, we don’t know what will happen.”
Pethokoukis predicts that Clinton, as president, ultimately would support the TPP. “She’s a run-of-the-mill Democratic on trade, despite the protectionist stance that has emerged because of Sanders’ skepticism of trade deals,” he says. “She doesn’t want to be perceived as a ‘full speed ahead’ free trader, but once in office that will likely change.”
Trump, on the other hand, has come out strongly against the TPP. He has also proposed 35% and 45% tariffs on goods from Mexico and China, respectively, and he would harshly penalize countries for violations of trade agreements. Most clear is his promise to renegotiate all past trade pacts, which he charges were “bad deals” for the United States.
Not that he’d be the victor in those negotiations. “To Trump, ‘winning’ means a U.S. trade surplus, but I don’t think other countries are simply going to roll over, despite his alleged negotiating prowess,” says Pethokoukis. “He’s also very hung up over currency manipulation by China, but that’s an old story that is no longer accurate.”
Fratrik is similarly dubious: “Is there a policy there other than his promise to win a better deal? Not that I can see.”
Given the economists’ profession, they take seriously the idea of Clinton or Trump tinkering with free trade. “Free trade is the engine of economic growth,” says Kotlikoff. “Every economist I know thinks the TPP is a fantastic deal for the U.S. We give up very little and get back a lot.”
David A. Levy, chairman of the Jerome Levy Forecasting Center, is equally alarmed. “The world economy is fragile,” he says. “This is not a good time to cause even more international dissonance by walking away from [the North American Free Trade Agreement] or trying to change the TPP,” he says.
Both candidates try to appear tough in discussions about Wall Street and banking, given lingering public resentment over the financial crisis that fueled the Great Recession of 2007–2009.
The key difference between them is that Trump wants to shred the 2010 Dodd-Frank Act enacted to address the crisis, whereas Clinton, who praises the law, wants to bolster it. She would also battle for tough new rules governing banks. Trump, who blames the regulatory climate for inhibiting credit and causing the country’s dour economic growth, has yet to unveil specific details of proposed legislation that would replace Dodd-Frank, assuming there would be any.
Trump’s former campaign manager, Paul Manafort, called for reinstating the 1933 Glass-Steagall Act, banning banks from engaging in real estate, securities trading, and insurance brokerage, although Trump has been mum on the subject.
Trump’s been more vocal in his resolve not to break up big banks—even in situations where they pose systemic risks, a power granted the president under Dodd-Frank. “He’s more or less saying let’s go back to the good old days when Wall Street did whatever it wanted,” Baker says.
Clinton has talked about enacting a financial transaction tax (FTT) on high-frequency trades that are part of “unfair and abusive trading strategies,” but it’s unclear what the FTT rate would be.
Several economists feel she is blowing smoke in her pledge to be tough on Wall Street. “She’s saying she’ll prosecute people who break the law, and break up the banks if they impose a systemic risk, but her history has been otherwise,” says Baker. “She’s gotten a lot of money from people on Wall Street, and … my guess is she will be no tougher on Wall Street than President Obama.”
The candidates have similarly divisive positions on the Affordable Care Act. As he has made abundantly clear, Trump would try to repeal the legislation. He would replace the law with a mostly undefined, price-transparent universal health care system based on free market principles, in which buyers are provided different plan choices.
He also wants to reduce barriers to the interstate sale of health insurance, break up the health insurer monopolies, and provide a full tax deduction to individuals for insurance premium payments.
But Trump’s lack of specificity could be a problem for him, according to Fratrik. “He wants to repeal Obamacare and replace it with a free market system, but he hasn’t stated whether he would provide coverage for individuals with pre-existing conditions, as well as other elements of the law that everyone now expects,” he says. “Nevertheless, I’m more bullish for the health care marketplace in a Trump administration, as it would be more market-based.”
Kotlikoff demurs. “Trump’s plan would give the states a fixed amount of money and tell them it’s their problem to insure whomever they want,’” he says. “He also wants to allow people who want to be uninsured to be uninsured. Then, when they get sick, they’ll have to spend all their money before they can qualify for Medicaid. His is certainly not a comprehensive plan that will address enormous health care costs.”
Clinton would maintain the Affordable Care Act with modest changes, such as enhancing provisions for individuals with mental health challenges. She favors the creation of a public-option insurance plan in every state and wants to allow citizens to enroll in Medicare when they turn 55.
“Clinton is a big supporter of the Affordable Care Act and wants to make it better, reducing the cost of some of the insurance policies in the exchanges and making the exchanges work better,” says Baker. “This is a big issue now that Aetna has pulled out of most of them.”
Aetna attributed its decision to leave the exchanges to a higher-than-expected volume of ill, costlier policyholders. To return to the exchanges, Aetna wants a more balanced risk pool. “I believe Clinton will achieve that administratively,” Baker adds.
Others agree. “She’ll tweak the Affordable Care Act to bring costs down, cover more people, and give them more choice,” says Pethokoukis. “To keep other insurers from leaving the exchanges, she may need to beef up federal subsidies. She hasn’t talked about that, but I can see it occurring.”
On the other hand, Kotlikoff has significant problems with Clinton’s health care agenda. “There’s no provision to increase competition among health insurers,” he says. “Consequently, insurers will continue to ‘cherry pick’ healthy individuals, leaving those who are less healthy and poor to fend for themselves.”
The candidates could not be more discordant on the issue of America’s energy needs. Trump wants to lift restrictions on all sources of energy to accelerate employment, increase GDP, and bolster federal and state tax coffers, writing “a new chapter in American prosperity,” he has said.
Clinton has a very different chapter in mind, wanting the United States to become the “clean energy superpower of the 21st century,” a future she also promises will lead to millions of new jobs and the development of new businesses.
The divergent stances derive from the competitors’ starkly different opinions on climate change. Trump stated in a tweet that climate change is a hoax cooked up by China to de-industrialize the United States. He wants the energy industry to be allowed to drill for oil and gas and mine for coal with much less red tape.
He also supports building the Keystone XL pipeline, lifting the ban on crude oil exports to foreign markets, and abolishing the Environmental Protection Agency. With regard to sustainable energy sources, he blames wind-generated power for killing birds and causing sickness, and he calls them “industrial monstrosities.”
In effect, when it comes to energy Trump would essentially wind back the clock to the mid-20th century. “He talks about bringing back jobs in the coal industry, which means underground mining, something we haven’t seen since the 1970s,” Baker says. “Do we really want to do that?”
For Kotlikoff, that’s a rhetorical question. “Trump is discounting all the evidence on climate change, the fact that the vast majority of scientists around the world concur on the subject,” he says. “He thinks he’s smarter than all these people but is ignoring a great peril to our country and our planet.”
Trump’s rhetoric also indicates he would likely reduce or eliminate federal subsidies for solar and wind energy production. Clinton, on the other hand, wants to end federal subsidies to the oil and gas industry, modernize the power grid, and make other moves to transition the energy infrastructure from fossil fuels to cleaner forms of energy like wind and solar. She has also left the door open to discussions of a carbon tax on users of fossil fuels, a key plank in Sanders’ platform.
“She’s too scared to say she supports a carbon tax outright, given the financial impact it would have on voters using fossil fuels,” Kotlikoff says. “This is the difference between a leader and a politician. A leader says exactly what is wrong with the country and here’s how to fix it. A politician sugarcoats the truth.”
While Trump supports fewer restrictions on hydraulic fracturing, Clinton is not expected to impose additional constraints. “I don’t think a Clinton administration would mess with new ways of developing oil and gas, although it might tinker with them a bit,” says Fratrik.
The divide between the nominees on immigration is vast, with Trump favoring mass deportation of illegal immigrants and Clinton seeking a path toward citizenship and immigrant integration. Trump wants to build a wall separating the United States and Mexico—and paid for by our southern neighbor, although he hasn’t said how he’ll make that happen.
Clinton seeks less radical means of securing the border, although she has not provided detailed plans. Still, her policy proposals resonate with most of the economists.
“Normalizing a path toward citizenship makes sense,” says Baker. “Mass deportations and a giant wall would be a humanitarian and economic disaster.”
Offers Fratrik: “Trump’s plan is totally populist, bad for the economy, and just plain wrong. Clinton recognizes that immigration is the hallmark of American industry and economic growth, despite the distributional impact it has on employment.”
The Bottom Line
Obviously, the stark differences in the candidates’ policies—assuming they’re the real deal and not just smoke and mirrors—provide a clear basis for picking one or the other. And whether you love ’em or hate ’em (either candidate or both), the winner’s decisions likely will have a profound impact on the future of the U.S. economy and business growth. Then again, so will myriad geopolitical and macroeconomic factors outside the president’s control. The leader of the free world can only do so much.
Russ Banham is the author of 24 books, including “Higher,” a history of aerospace giant Boeing.