Making Trump Great Again:
The U.S. Political Economy
After the Mid-Term Elections

Jay K. Rosengard
Harvard Kennedy School

The Good, The Bad, and The Ugly
Part I: The Good (Campaign Promises Kept)• Trumpenomics• Trumpolemics
Part II: The Bad (Results of Fulfilled Pledges)• U.S. economic performance• Other impacts
Part III: The Ugly (Current Conflicts & Contradictions)• Fiscal, monetary, and trade policies• Immigration, environment, defense, and governance2Part I: The Good(Campaign Promises Kept)3

Trumpenomics

Lower Taxes: Tax Cuts and Jobs Act (December 2017)• Reduce individual income tax from 7 to 3 tax brackets with tax
rates of 12%, 25%, & 33%:
– Still 7 brackets, still very complex (or now more complex)– Tax rates 10%, 12%, 22%, 24%, 32%, 35%, 37% (vs. 10-39.6%)– Doubled standard deduction, repealed personal/dependent
exemptions, placed limits on state and local tax deductions• Reduce corporate tax rate from 35% to 15%– Reduced to 21%, 10.5% for income of U.S. foreign subsidiaries– 20% deduction for income from pass-through businesses• Reduce corporate tax on repatriation to 10%– One-time 8% tax on unrepatriated foreign earnings• Repeal estate and gift taxes– Top rate of 40% on estates > $11.2m/$22.4m (double previous)– Tax on endowment investment income of large universities

Increase Expenditures:• National defense (e.g., 350-vessel navy fleet)• Border security (e.g., “The Wall”)• Domestic infrastructure (e.g., $1 trillion PPP)
↑Defense $165b,↑Non-Def. $131b FY18-FY194

Trump Tax Proposal

5Comparing 2017 Law and 2018 Tax Cuts and Jobs Act(continued)

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Trumpenomics (2)America-First Trade Policy• No Trans-Pacific Partnership: Withdrew• Re-negotiate NAFTA: USMCA• China currency manipulator, subject of trade cases: Trade WarUnleash American Energy• Attain energy independence: In process• Increase coal production and hydraulic fracturing: No• Increase energy production on federal lands: Permitted
Repeal Affordable Care Act• Cut enrollment period in half, gutted outreach budget• Repealed ACA individual mandate penalty (in tax bill)• Abandoned protections for pre-existing conditions• Cut subsidies to insurance companies
Penny Plan• Reduce non-defense, non-safety net spending annually by 1% of
the previous year’s total: No approved complete budget• Total reduction $1 trillion over ten years: Tax Cuts and Jobs Act
estimated to increase deficit $1.5 trillion
 Reaganomics Redux….
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Trumpolemics (1)• Crackdown on immigration (legal and illegal)– Increased raids, deportations + sanctuary city retaliation– Imposition of selective bans + enhanced vetting– Cancellation of DACA (“Dreamers”), temporary protective status (TPS)– Restriction of temporary/special work visas (H-1B)– Addition of citizenship question to national census– No funding for “The Wall”, no comprehensive reform• Crackdown on criminals– Enforcement of federal marijuana laws
– New law on criminal justice reform (First Step Act)• Reshaping of judiciary– Appointment of two Supreme court justices– Many federal court appointments, including 21 appeals court judges• Rejection of global warming prevention/mitigation– Withdrawal from Paris Accord– Shrinkage of national monuments– Deregulation of greenhouse gases, rescinding of automobile efficiencystandards, expansion of offshore drilling, approval of XL pipeline8Trumpolemics (2)• Deregulation of financial industry and internet services– More lenient Dodd-Frank bank supervision– Blocked fiduciary rule for brokers– Weakened Consumer Financial Protection Bureau– Repeal of net neutrality rules• Promotion of social conservatism– Planned Parenthood targeting domestically, reinstatement andexpansion of global “gag rule”– Denial of insurance coverage for birth control– Banning of transgender people from military, revocation of transgenderbathroom guidance in schools– Imposition of work requirements for Medicaid, other federal programs• Protection of predatory for-profit colleges– Freezing of student debt relief– Weakening of oversight• America First foreign policy– Withdrawal from Iran nuclear weapons pact
– Opening of Jerusalem embassy, withdrawal from Syria– Restrictions in relations with Cuba
– Engagement with North Korea– Tension with allies

9Part II: The Bad(Results of Fulfilled Pledges)

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U.S. Economic Performance (1)• GDP growth (2018 est.): 3.0% (2.2% in 2017)• Trade balance (thru 10/18): -$503b (-$552b in 2017)• Unemployment Rate (12/18): 3.9% (4.1% in 2017), 18-year
low, rate for blacks fell to 6.7% (lowest level since records
kept beginning in 1972)• Net Nonfarm Payroll Jobs Created (2018): +2.6 m (+2.2 m in2017), 8th straight year of increases > 2 m• Positive Net Jobs Created 99 consecutive months, longest
expansion on record• Real Average Hourly Earnings (Nov. 2018): +0.8% (yoy)• Below poverty line (2017): 12.3%, lowest since 2006
• Urban CPI thru 11/18: 2.2% (2.1% in 2017)• Stock markets volatile
Fear of overheating, inflation with fiscal stimulus
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U.S. Economic Performance (2)Real GDP Growth from 1990 to 20176%4%2%0%-2%-4%

Source: Bureau of Economic Analysis, U.S. Department of Commerce

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U.S. Economic Performance (3)U.S. Trade Balance from 2000 to 2017
0-200

-400

-600-800

Source: Bureau of Economic Analysis, U.S. Department of Commerce

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U.S. Economic Performance (4)Unemployment Rate (Total)%

Unemployment Rate (Blacks)%

Source: Bureau of Labor Statistics, U.S. Department of Labor

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U.S. Economic Performance (5)Net Nonfarm Payroll Jobs Created (thousands)

Source: Bureau of Labor Statistics, U.S. Department of Labor

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U.S. Economic Performance (6)16Revenue and Distributional Effects of theTax Cuts and Jobs Act• Revenue– Increase deficit $1.5 trillion over 10 years– Increase public borrowing, debt/GDP, interest rates– Crowd out private borrowing, slow economic growth(stimulus counterproductive at full employment)– Require tax increases or expenditure cuts
– Positive impact on macroeconomic feedback very small• Distributional– Two-thirds of benefits will go to top quintile and onefifth will go to top 1%– 6% of the benefits will go to bottom two quintiles– Tax cuts on earned income expire in 10 years

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TCJA Revenue Impact

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TCJA Distributional Impact (1)19

TCJA Distributional Impact (2)20State of U.S. Politics After Mid-Term Elections• Executive Branch: Still controlled by Republicans(Trump)• Legislative Branch: Split (Senate Republicans, HouseDemocrats)– Senate: 53-47 [Republicans Gained 2 Seats]– House of Reps: 235-199 [Democrats Gained 40 Seats, 1 SeatUndecided]• Judicial Branch: Appointments by Republicans– 2 Supreme Court appointees [Justices Neil Gorsuch & BrettKavanaugh]– Maybe additional Supreme Court vacancy (Justice RuthBader Ginsberg)• Robert Mueller investigation re Russian interference in2016 election, Trump obstruction of justice Leadership crisis creating gridlock and uncertainty
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Longer Term Results• It is too soon to assess Trump’s impact on the national andglobal economy given external factors and time lags
• The most immediate impact of the Trump presidency has
been on domestic and foreign perceptions regarding
confidence, trust, and certainty• Long-term impacts on peace and prosperity still unknown,and probably unknowable given Trump’s impulsiveness• A potentially devastating but largely invisible long-term
impact of the Trump presidency is a result of theAdministration’s preference for “faith-based policy” rather
than “evidence-based policy”• This is causing a slow erosion of the quality of American
institutions, given the exodus of senior civil servants and lackof enthusiasm of young professionals to enter the civil service
22Part III: The Ugly
(Current Conflicts & Contradictions)23

Fiscal, Monetary, and Trade Policies• Fiscal stimulus (tax cuts and expenditure increases)
with full employment and rise in real wages has led
to fear of overheating and inflation, so Fed has
steadily raised interest rate in response, resulting incontradictory fiscal and monetary policies• Increased interest rates and appreciating USD makeexports less competitive and increase trade deficit• Trade war tariffs on imports, especiallymanufacturing components, make US businesses
less competitive and force relocation overseas• Domestic jobs are being lost, not gained, in thistrade war24

Immigration, Environment, and Defense• Self-created humanitarian crisis at southern borderwith Mexico (automatic detention, family
separation, catch-and-release)• No national security emergency requiring The Wall
• Government shutdown greater threat to security• Negative health and welfare effects of Trump
environmental policies contravene Administration’s
own professed regulatory cost-benefit principles• Both allies and enemies confused about U.S. foreign
policies and strategic objectives• Confusion breeds uncertainty and instability
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Governance (1)• Checks and Balances– Executive vs. Judicial, independence of judiciary: Trump
criticism of Supreme Court, specific federal judges– Executive vs. Fed, independence of central bank: Trump
criticism of Fed Chairman, Fed monetary policy– Executive vs. Legislative, roles and responsibilities foroversight and appropriations: Trump potential
obstruction of justice, declaration of national emergency• Federalism and Subsidiarity– 10th Amendment to the Constitution: Upward devolution– Federal vs. S&L authority: ICE and sanctuary cities,
Affordable Care Act and Medicaid
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Governance (2)• General Election in November 2020
– Democrats likely to retain control of House ofRepresentatives and take control of Senate– Although economic growth is projected to slow down, it
is nevertheless expected to be positive– Thus Trump could still get reelected if:• He remains healthy• He does not get impeached and convicted• Democrats cannot unite behind strong candidate27

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