Square-Off: Which Candidate Will Be Better for the Economy?
Apparently, there’s widespread dissatisfaction among CFOs about the choice between Hillary Clinton and Donald Trump for the next president of the United States. During an interview about last week’s CFO 2016 Presidential Election Survey, Steve Underhill, the treasurer and controller of R.O. Whitesell & Associates, seemed to sum up the views of many survey respondents: “I think it’s an absolute shame that in a country the size of ours and with the history of ours that we’re down ..
Leonard Bickwit Jr.
I’m voting for Hillary. No question about it. I’m a long-time partisan Democrat, and I think the most important issue in this election is income inequality. I think she gets that. And I think her programs would actually do something about it.
Donald Trump, on the other hand, to use one of his favorite words, would be a “disaster” for the country. I am offended by the amount of prejudice, ignorance, insensitivity, and superficiality he routinely displays. While he is not all bad, I guess, I think his redeeming qualities are, to say the least, scarce.
So whose policies do I think would be better for the nation’s economy? It is painful to acknowledge that Trump’s would be preferable. That’s because the greatest impact the next president can have on the economy will be through the enactment of tax reform. And Hillary’s plans for tax reform are seriously deficient.
As you might guess, I’m drawn to her positions on the taxation of individuals. The nation’s resources are limited; we have accumulated a massive debt; and there is immense wealth and immense poverty among the population. I welcome increased taxes on that wealth in order to mitigate the poverty, reduce the debt, and attend to the needs of the country – like defense, education, and health – that have been slighted over the years. I’ve heard arguments that any such approach will dull work incentives and wind up hurting the interests we’re trying to benefit. I don’t believe them. Yet I also don’t believe that the individual tax reform I’d like to see would necessarily help the economy. And I certainly don’t believe it’s likely to happen anytime soon.
What I do believe is that corporate tax reform – and particularly the reduction of the U.S. corporate tax rate – can improve the U.S. economy dramatically and soon. Many share that belief. Lowering the corporate rate has been supported not only by nearly all congressional Republicans, but also by the Obama administration and, perhaps with less enthusiasm, by most congressional Democrats.
A significant consensus has developed behind the politically palatable mantra of “lower the rate, broaden the base.” The consensus members note that the United States has the highest corporate rate in the developed world and contends that unless that rate is lowered, U.S. companies will be outcompeted increasingly in world markets. In that event, the consensus argues, U.S, companies can be expected to leave the country, as they have been doing increasingly in recent years. The cost will be in U.S. jobs, revenues, and worldwide economic prominence. I am strongly with the consensus on these points. So is Donald Trump. Hillary is not.
We know that in part because her campaign says so. Only a few weeks ago, Neera Tanden, president of the Center for American Progress and very possibly the first White House Policy Director in a Clinton administration, showed the campaign’s hand. She specifically acknowledged it was “hard to argue” that U.S. companies were not competitive and need a lower rate. This, despite the fact that President Obama, his principal economic advisers, and large numbers of congressional Democrats have been arguing that for years.
We can also infer Hillary’s position on corporate rate reduction from the campaign’s strategic positioning on other significant legislation. Based on many indications, Hillary’s first major legislative proposal would be a large infrastructure bill. She has said she’ll pay for that bill (i) by “making corporations pay their fair share” (which probably means the enactment of “base-broadeners” like the termination of favorable tax treatment for “carried interest,” and (ii) by imposing an “exit tax” on corporations leaving the country.
That approach inevitably will make corporate tax reform – including corporate rate reduction – much more difficult to do. As discussed, the brand of tax reform typically supported by the tax-reform enthusiasts calls for lowering the rate and broadening the base. But to the extent that base-broadeners are used to pay for large infrastructure expenditures having nothing to do with tax reform, the revenue they yield will not be available to pay for lower corporate rates. That prospect alarms those who support the consensus on rate reduction. It does not appear to alarm Hillary, since she is not a part of the consensus.
In criticizing her for that, however, I do not mean endorse Trump’s entire tax reform plan as an alternative. I do want to support his recognition that if we lower corporate rates, we also need to provide meaningful relief to pass-through business entities, which do not pay corporate level taxes. But his overall plan has major excesses that are much too generous to both corporations and individuals.
Fortunately, we can expect Congress to trim those excesses, given prevailing concerns about the national debt. By contrast, if Hillary does not want to reduce corporate rates, then Congress probably will not be able to impose a reduction on her. Veto overrides will be just too difficult to obtain –especially if, as expected, her party strengthens its hand in Congress. Thus her opposition to such a reduction will stick, and the economy will suffer the consequences.
And I’ll be less proud of the vote I’ll be casting for her.
Leonard Bickwit, Jr., a member at Miller & Chevalier, practices law in the areas of legislation and government relations, focusing principally on tax policy issues. The opinions expressed in this article are those of the author and do not necessarily reflect the views of the firm or its clients.