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David Malpass: Trump's Tax Cut To Increase Median Income(Audio) · Bloomberg Intelligence

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  Speaker 1: Business flash you're listening to taking start with Kathleen Nates
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  Speaker 1: and Influx on bloom Bird Radio. Speaking to more than
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  Speaker 1: a thousand people at an event hosted by the Detroit
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  Speaker 1: Economic Club, Donald Trump, Republican nominee for president, spoke about taxes,
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  Speaker 1: government regulation as well as trade policy. Here to tell
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  Speaker 1: us more is David Malpass. He is the economist and
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  Speaker 1: also the founder of n SIEMA Global And David Malpass
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  Speaker 1: is a now a member of the Trump economic team
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  Speaker 1: and he's here to tell us more. David, thank you
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  Speaker 1: very much for being with us. Him happy to be on.
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  Speaker 1: Kathleen gets better, Okay, everybody will, It's not nothing serious.
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  Speaker 1: Everything's good. UM, tell tell us a little bit about
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  Speaker 1: Donald Trump's economic plan, and let's begin, if we can,
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  Speaker 1: with taxes, because um, he's now aligned the income brackets
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  Speaker 1: with the plan that was proposed by Paul Ryan. That's
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  Speaker 1: different than his previous plan. Is that correct? That's right
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  Speaker 1: as far as the brackets, but recognized the concept of
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  Speaker 1: the tax reform is to have a big change in policy,
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  Speaker 1: to simplify the code and to have the business taxes
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  Speaker 1: lower so that there's more investment. You know, the economy
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  Speaker 1: has been really under investing. So this is aimed at
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  Speaker 1: getting more growth, unleashing the economy. UM, So the focus
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  Speaker 1: on the exact tax brackets. Recognized, This is all going
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  Speaker 1: to go through Congress, UH in a linked the process.
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  Speaker 1: I worked on the s Tax Act, and it takes
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  Speaker 1: a long time to get Congress oriented, get everybody working
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  Speaker 1: together and cut a deal. Now he's also proposed excluding
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  Speaker 1: childcare expenses from taxation, as well as ending the estate tax,
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  Speaker 1: the carried interest deduction, and cutting taxes across the board.
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  Speaker 1: Is that all accurate? That's that's correct. Now the carried
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  Speaker 1: interest goes the opposite direction of the estate tax and
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  Speaker 1: the and the childcare credit. Just just as a note,
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  Speaker 1: but but where how are we going to fund We
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  Speaker 1: didn't get any details about how all these cuts would
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  Speaker 1: be funded. And one thing he said to you know
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  Speaker 1: that we've left out is that tim present rate on
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  Speaker 1: money repatriated to the US, corporations have a lot of
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  Speaker 1: cash abroad and so that brings in some but that
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  Speaker 1: the focus of this is to have more growth within
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  Speaker 1: the economy. When Reagan did the Reagan tax cut in
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  Speaker 1: eighty six, there were there was lots of criticism that
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  Speaker 1: it wouldn't work because it was it was too big,
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  Speaker 1: and it was scored as a revenue loser. But what
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  Speaker 1: happened was the economy bigger, more people came into the
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  Speaker 1: labor force, and it worked really well. So I'm happy
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  Speaker 1: with the way this, uh, this was presented and delivered
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  Speaker 1: and received by the Detroit Economic Club that you know,
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  Speaker 1: there was a lot of clapping as he talked about
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  Speaker 1: changing policy. Just so we understand. The Tax Policy Center
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  Speaker 1: has concluded this having to do with the middle class
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  Speaker 1: and tax cuts, says that the largest benefits in dolarant
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  Speaker 1: percentage terms would go to the highest income households. Is
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  Speaker 1: that you at odds with the Tax Policy Centers analysis? Right? Yes,
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  Speaker 1: I am. And here's why. When you grow the economy,
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  Speaker 1: what you'll do is bring in people uh into the
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  Speaker 1: into the labor force that are getting excluded now. So
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  Speaker 1: the the biggest beneficiaries of a bigger economy are going
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  Speaker 1: to be uh, people that young people, minorities, people that
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  Speaker 1: have become discouraged with the with labor conditions, maybe people
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  Speaker 1: with lower skills. Uh. They're gonna benefit hugely from this
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  Speaker 1: kind of a change. And so economists are gonna, you know,
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  Speaker 1: try to do a kind of a static analysis of saying,
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  Speaker 1: if we apply these tax rates to the historical uh
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  Speaker 1: kind of economy that we've had, it will it will
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  Speaker 1: benefit a certain group. I really reject that as a
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  Speaker 1: as a tech technique. I don't think it's valid or
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  Speaker 1: that you could do it accurately, all right, but then
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  Speaker 1: what would be the alternative process by which you would
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  Speaker 1: analyze it other than desire or belief. I think the
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  Speaker 1: best metric is real median income. So what we know
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  Speaker 1: is over the last seven years it's been going down,
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  Speaker 1: which is remarkable. I don't think we've ever had that
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  Speaker 1: during a recovery. So what we're doing now is arguably
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  Speaker 1: the wrong policy because growth is so slow one over
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  Speaker 1: the last year, and the real median income keeps going down.
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  Speaker 1: That's the that's the you know to to define that
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  Speaker 1: for people. That means you've inflation adjusted to middle the
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  Speaker 1: fiftieth percentile of the curve, and usually that goes up
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  Speaker 1: in an expansion. That's the whole point of economic growth,
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  Speaker 1: and we're not getting it. So my view is that
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  Speaker 1: this tax cut will will cause a big or begin
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  Speaker 1: to cause a big increase in the real median income.
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  Speaker 1: That's what happened in the nineteen eighties, that happened after
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  Speaker 1: Bush's Bush forty three's tax cut in two thousand three
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  Speaker 1: as well. Is it possible that the addition of technology
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  Speaker 1: at such a breakneck pace is one of the things
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  Speaker 1: that has changed the disposition of wage growth. You know
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  Speaker 1: it's possible, and people have all these theories about about
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  Speaker 1: their being secular stagnation or that robots are going to
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  Speaker 1: take over. My view is that the policies, the macro policies,
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  Speaker 1: are the wrong ones that are in place right now,
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  Speaker 1: and so it's too early to count the US economy out.
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  Speaker 1: In fact, we shouldn't. But why would I'm just why
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  Speaker 1: why would you a lie on that kind of assessment
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  Speaker 1: for this issue but not rely on the same assessment
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  Speaker 1: for the issue of creating jobs in the United States
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  Speaker 1: or for many of the other UH concepts having to
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  Speaker 1: do with how do you pay for all these tax cuts?
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  Speaker 1: You say that you're just going to grow the economy.
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  Speaker 1: I think people get it, but it's like you're using
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  Speaker 1: one set of analysis tools for one thing and another
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  Speaker 1: to understand the tax implications of cutting rates for people
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  Speaker 1: and companies. I'm sorry, I so I I missed the
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  Speaker 1: question that I think growth will cause more people to
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  Speaker 1: come into the labor force and will partially address the
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  Speaker 1: technology concerned that that you were mentioning. So what's the
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  Speaker 1: question again, Well, just the idea that you know the
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  Speaker 1: analysis you're using on the one hand to look at
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  Speaker 1: job and wage stagnation and over the last however many years,
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  Speaker 1: is different than the analytical tools that you're using to
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  Speaker 1: assess the implications of deficits because of tax reductions. No,
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  Speaker 1: I would propose using the same metrics. So over the
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  Speaker 1: last seven years, the real median income has gone down
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  Speaker 1: by two thousand dollars. Normally it goes up in a
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  Speaker 1: in a recovery or an expansion. So I think it
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  Speaker 1: would be entirely appropriate and we should. Uh, if this
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  Speaker 1: tax cut were implemented, you would want to measure it
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  Speaker 1: in terms of real median income, meaning does the average
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  Speaker 1: person feel that they're getting more wages and getting ahead
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  Speaker 1: of inflation? And that happened dramatically in the nineties, then again, uh,
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  Speaker 1: less dramatically in the two thousand's, and so so it's
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  Speaker 1: going to be it would be a major change in
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  Speaker 1: policy aimed at increasing living standards. Do you buy this
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  Speaker 1: notion that the that the government's employment figures are manipulated? Uh?
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  Speaker 1: You know, the word manipulated is harsh. What I think
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  Speaker 1: is that lots of people aren't being counted in the
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  Speaker 1: labor force, so that tends to hold down the unemployment rate.
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  Speaker 1: So the true labor environment isn't as good as what's
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  Speaker 1: reflected in the four point nine percent unemployment rate. So
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  Speaker 1: I don't use the term manipulated. Uh, But what we
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  Speaker 1: can say is we have a system that doesn't fully
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  Speaker 1: count people that are getting left out. All right, Well,
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  Speaker 1: what I didn't want to leave out one topic. I
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  Speaker 1: know you've had a lot of a lot of thought
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  Speaker 1: on this, UM eliminating the US debt. I believe that
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  Speaker 1: Donald Trump has said this could be done in eight years.
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  Speaker 1: Do you buy that? No, not so much. But what
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  Speaker 1: what the goal I think needs to be is to
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  Speaker 1: have stronger finances for the for the country. UM. Right now,
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  Speaker 1: we're in this desperate addition where the debt is going
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  Speaker 1: up so fast and you know CBO projection is a
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  Speaker 1: trip on average over the next ten years under current policy,
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  Speaker 1: the national debt would go up a trillion dollars every year,
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  Speaker 1: so it's completely out of control. So stabilizing the debt
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  Speaker 1: to GDP ratio would be would be a first step.
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  Speaker 1: And then what I've advocated is bringing that down, meaning
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  Speaker 1: debt relative to the size of the economy should be
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  Speaker 1: brought down substantially. You know, I've advocated, uh, rewriting the
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  Speaker 1: debt limit so that it restrains some of that out
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  Speaker 1: of control spending that's coming out of Washington. I want
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  Speaker 1: to thank you very much. David Malpass, very insightful economist.
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  Speaker 1: He's also the founder of n SEEMA Global. David Malpass
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  Speaker 1: a veteran of the Reagan as well as the second
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  Speaker 1: Bush administration, and he has been named to Donald Trump's
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  Speaker 1: new economic team. Donald Trump making those proposals about reducing
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  Speaker 1: the number of come tax brackets from seven to three
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  Speaker 1: and other economic issues in a speech in Detroit at
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  Speaker 1: the Detroit Economic Club. This is taking Stock. I'm Pim Fox,
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  Speaker 1: and this is Bloomberg.