ELECTING AMERICA'S ECONOMIC FUTURE
Yet downside risks are mounting. If they materialize, a Trump victory would become less likely. According to recent models by Moody’s Analytics, it would take a tanking economy – or unusually high voter turnout among Democrats, but not Republicans – for Trump to lose in 2020. As center-left former Vice President Joe Biden, the early frontrunner for the Democratic Party nomination, loses ground to the far-left U.S. Senator from Massachusetts, Elizabeth Warren, Trump’s chances of success may be rising. Then again, in the 1980 election, the most conservative Republican candidate, Ronald Reagan (whom I advised), was also labeled unelectable. If Trump does win a second term, he cannot always be expected to pursue traditionally conservative economic policies, such as his 2017 Tax Cuts and Jobs Act, which brought the U.S. corporate-tax rate in line with the OECD average. Judging by hints from him and his advisers, however, he can be expected to pursue another round of regulatory and tax reform. Meanwhile, Democratic presidential candidates favor expanding the social safety net, beginning with health care. While some want to build on President Barack Obama’s 2010 Affordable Care Act – which Trump and congressional Republicans failed to “repeal and replace” – others hope to eliminate private insurance, on which two-thirds of Americans depend.
Senator Bernie Sanders plan to introduce a government single-payer system. The costs would be staggering – over $30 trillion in the first decade, by some estimates. Sanders would raise taxes; Warren is trying to dodge saying so. Given the price tag, that would have to mean massive income or payroll tax hikes, or a Europe-style regressive value-added tax, any of which would fall heavily on the middle class and weaken economic incentives. But that is not all: Democrats also plan to introduce expensive subsidies, tax breaks, direct spending, loan forgiveness, and other giveaways, insisting that these proposals can be funded largely by increasing taxes on the wealthiest Americans. Biden wants to double the capital gains tax; Warren would almost double the top marginal income-tax rate from 37% to 70%, and both she and Sanders favor new wealth taxes, which even most Nordic countries have abolished. But their math does not add up, by at least an order of magnitude. There is one area where Trump and the Democrats both want to spend more: infrastructure. Repairing and maintaining roads, ports, and airports is partly the federal government’s responsibility, but state, local, and private finance should be expanded. Neither Trump nor any of the Democratic candidates seeking to challenge him has put forward a serious plan. With neither party focused on fiscal responsibility, the growing, unfunded liabilities in Social Security and Medicare, several times the national debt, mean Americans will face far more damaging tax hikes or draconian spending cuts in the future.
In place of private health insurance, Democrats like Warren and Vermont
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November 2019
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