Democrats promote the Keynesian theory. It says government spending and tax cuts boost economic growth by increasing demand. Most Democrats target these policies toward middle-income families. They offset deficit spending with higher taxes on investments, large businesses, and high-income families. They address income inequality by providing more benefits for low-income households. People without a lot will spend any extra money on food, medicine, and shelter. That drives demand more than saving and investing does. Republicans promote supply-side economics. That theory says reducing business, trade, and investment costs is the best way to increase growth. Companies use the extra money to hire more workers. Unfortunately, that hasn’t been the case in this recovery. Companies have plenty of cash but aren’t spending it on new jobs. They are putting it in the stock market, U.S. Treasurys, and overseas investments. In 2016, many voters were frustrated with the traditional parties. That boosted Donald Trump’s popularity. It has also taken him away from conventional Republican views. For example, he is opposed to free trade agreements. He wants to stop companies from outsourcing jobs by raising tariffs. Most Republicans think this makes U.S. companies less competitive in international trade. Here are the candidates’ solutions to U.S. economic problems, and how well they would work. Keep in mind any plan must be approved by Congress, as presidents can’t impose tax or spending plans via executive order. Trump would lower income and corporate tax rates and eliminate many loopholes. Tax cuts are the least efficient method of creating jobs. It would reduce revenue by $950 billion a year, adding to the $20 trillion debt. To offset the lost revenue, Trump would cut spending. He promised to eliminate the Departments of Energy and Education ($80 billion combined). Trump promised to cut military spending (currently at $800 billion) but somehow make defense stronger and improve the Veterans Administration. Even if he eliminated these four departments ($880 billion), it would not offset the loss in revenue from his tax cuts. Trump would need to cut the current $4.1 trillion budget by 12 percent to eliminate the $500 billion deficit. He’d have to cut mandatory spending such as Social Security and Medicare benefits. His cuts are more than the 10 percent cut to the Discretionary budget mandated by sequestration. Trump promised to repeal Obamacare. At one point he said he would replace it with a universal market-based plan. Ironically, that mirrors Obama’s original health care reform plan. Hillary Clinton promised to boost growth by giving tax cuts to the middle class and small businesses. She pledged to reduce income inequality by raising the minimum wage. She would have raised short-term capital gains taxes for those earning $400,000 a year. Her practical suggestions would have worked. Small businesses create 70 percent of all new jobs. Many top CEOs agree higher short-term capital gains taxes would reduce trading and increase long-term investment objectives. Ahead of her time, Clinton was the only candidate in 2008 that committed to a balanced budget. Since the budget deficit is a large contributor to the declining dollar, high oil prices, and inflation, its elimination is critical to the long-term health of the U.S. economy. Hillary has proven her ability to achieve her goals. During her service as First Lady, Senator, and Secretary of State, she racked up 14 major accomplishments. A nasty side-effect of trade protectionism is that other countries will immediately raise their tariffs. That would threaten the 12 million U.S. workers who owe their jobs to exports. Even better are payroll tax cuts for new hires only, which creates 18 new jobs for every $1 million cuts. Income tax cuts aren’t as effective, only creating 4.6 jobs for every $1 million cut. That’s because many people save the extra money. It doesn’t go into the economy, where it could stimulate demand.
