Sunday, March 18, 2018 09:47:34 AM
Barry Eichengreen :
Donald Trump took office promising a raft of sweeping economic-policy changes for the United States. He has quickly discovered, like previous US presidents, that America's political system is designed to prevent rapid, large-scale change, by interposing formidable institutional obstacles, from the Congress and career civil servants to state governments and the courts.
Start with reform of personal income tax. This should be a slam-dunk, because the president and congressional Republican leaders are on the same page. Trump's goal of removing the government's groping hand from Americans' pockets, by cutting the top marginal tax rate on ordinary income from 39.5% to 33%, is entirely consistent with mainstream Republican ideology, according to which high tax rates penalize success and stifle innovation.
But, to be politically viable, significant tax cuts for the wealthy would have to be accompanied by at least token tax cuts for the middle class. And broad-based tax cuts would blow a hole in the budget and excite congressional deficit hawks, of whom there are still a few.
One can imagine closing loopholes to render rate cuts revenue neutral. But one person's loophole is another's entitlement. Even if there are economic arguments for eliminating, say, the deductibility of mortgage interest payments, imagine the howls of protest from homeowners, including many Trump voters, who borrowed to purchase their houses. Imagine the reaction of Trump's friends in real estate.
Cuts on the spending side would assuage the deficit hawks. And big cuts to the Environmental Protection Agency, the US Agency for International Development, and National Public Radio are high on the Republican hit list. But the vast majority of federal spending is on entitlements, the military, and other proverbial "third rail" items that elected officials touch at their peril. Simply put, broad-based spending cuts to match broad-based income-tax reductions are not politically feasible.
Eliminating federal subsidies for health-insurance coverage under the Affordable Care Act ("Obamacare") would save the government a little over $100 billion a year, about 3% of federal spending. But those subsidies are largely paid for by their own dedicated taxes. Moreover, Trump and congressional Republicans are learning that replacing Obamacare is easier said than done. Health-care reform, as Hillary Clinton could have told them, is fearsomely complex. It is increasingly clear that the name will change ("Trumpcare," anyone?), and it can be expected that the Republican plan will cover fewer people; but much of the substance will remain the same.
Because corporate taxes are less significant in terms of overall federal revenue, rate cutting doesn't pose a comparable threat to the budget balance. But here there is no agreement between Congress and the Trump administration on the form such cuts should take.
House Speaker Paul Ryan and others favor moving to a border adjustment tax that would tax corporate cash flows regardless of where the goods sold by US companies are produced, while exempting exports. Others, such as Treasury Secretary Steven Mnuchin, are evidently skeptical. And an important part of Trump's business constituency - import-dependent retailers like Target and Walmart - are actively hostile. Agreement on a plan won't come easily.
Trump's other flagship proposal is a $1 trillion infrastructure program. But this initiative will run headlong into deficit concerns, and it is fundamentally at odds with Republican skepticism about big government, and specifically about the public sector's capacity to carry out investment plans efficiently. Trump will want to be able to point to a few signature projects. He will want his border wall with Mexico. But any new federal infrastructure spending is likely to be more symbolic than real.
So what will an impatient president, frustrated and hemmed in on all sides, do? First, Trump will focus on the one set of economic policies a president can pursue without close congressional cooperation, namely those affecting trade. He can invoke the Trade Expansion Act of 1962, restricting imports on the grounds that they threaten US "material interests." He can invoke the International Emergency Economic Powers Act of 1977 on the grounds that the loss of jobs to Mexico and China constitutes an economic emergency. He can even invoke the Trading with the Enemy Act of 1917 on the grounds that the US has Special Forces active in the Middle East.
Second, Trump will respond, as populists do, by attempting to distract attention from his failure to deliver the economic goods. This means directing his ire and that of his supporters toward others - whether internal enemies like the press, the intelligence community, and Barack Obama, or external adversaries like the Islamic State and China. It wouldn't be the first time a politician used a domestic political crusade or a foreign policy adventure to divert attention from his economic failures.
We have already seen Trump's tendency to lash out at perceived enemies, foreign and domestic. And we know that this confrontational style is the modus operandi of senior White House advisers like Stephen Bannon and Stephen Miller. We can hope that cooler heads prevail. But, given the constraints on implementing Trump's economic agenda, it's hard to be optimistic.
(Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund).
Courtesy : Project Syndicate
AFTER the US-Bangla plane crash, the Prime Minister has instructed the Civil Aviation Authorities to give highest priority to flight safety and maintenance of planes. No doubt, it is a timely instruction. Though it is still unclear why the plane was crashed, the survivors said the aircraft was shuddering few ...
Noted Telugu and Tamil actress Surbhi is likely to be part of Tollywood star, Nikhil's upcoming Tollywood movie, as per latest updates. The makers are in talks to rope in the actor for the movie, added reports. The much awaited film is a Telugu remake blockbuster Telugu movie, Kanithan. The ...
AP, Moscow :The gulf between Russia and Britain widened on Friday as they cranked up pressure over a nerve agent attack and a suspected murder in Britain that have deepened Western worries about alleged Russian meddling abroad.Britain's foreign secretary accused Russian President Vladimir Putin of personally ordering the poisoning of ...
STEPHEN Hawking died at Cambridge in England on Monday at the age of 76. A scientific genius who rose to eminence by his work on theoretical physics explaining the system of universe is no more but the scientific world will remember him over the time to come. We join the ...
It has been a gruelling shooting schedule for Parineeti Chopra, who is currently filming for Namaste England. The actress has been pulling off all day long shoots as she is filming an energetic song sequence with her co-star Arjun Kapoor. `It has been insane for Parineeti. She has been dancing ...
Reuters, Tokyo :Japanese Prime Minister Shinzo Abe's support has fallen 9.4 points to 39.3 percent, a survey by Jiji news agency showed, as suspicion swirls over a suspected cover-up linked to cronyism, Abe's worst crisis since taking office.Abe and Finance Minister, Taro Aso, 77, have been under fire since the ...
MYANMAR is militarising Rakhine State at an alarming pace as it is building helipad and camps for security forces bulldozing Rohingya villages. The latest move is not only making security on Bangladesh border highly tense but also making difficult safe and voluntary return of Rohingya refugees even as a more ...
Sports Reporter :World-class all-rounder Shakib Al Hasan will play for Bangladesh against Sri Lanka in the last Robin League match of the Nidahas Trophy Tri-Nation Twenty20 Cricket Series at R Premadasa Stadium in Colombo today. Shakib Al Hasan joined Bangladesh squad in Colombo on Thursday. A BCB official said, " ...
While one complains of done to death storylines on television shows, there is Naamkaraan that believes in pushing the envelope and bring out new facets in its storyline. With the plot recently going through a leap, the protagonist of the show Aditi Rathore calls herself lucky, as she gets an ...