There has been no shortage of economically illiterate and tone-deaf ideas in this presidential election. I have already criticized Kamala Harris on five occasions: excluding tips from taxation, providing a down-payment subsidy for first-time homebuyers, raising the corporate tax rate, price controls on groceries, and a capital gains tax on unrealized gains. Trump has had his own share of economically inane ideas, whether that is exempting Social Security benefits from taxation, excluding tips from taxation, subsidizing in-vitro fertilization, a 60 percent tariff on Chinese goods, and a universal 10 percent tariff.
I now get to add two more unsound ideas to Trump's policy recommendation list. Normally, I would cover each topic in separate blog entries. However, the reason I am covering them both today is because I have covered these topics in the past.
The first is Trump's policy to temporarily cap credit card interest rates at 10 percent, which he proposed at a rally last Wednesday. Trump wants to find a way to help everyday Americans recover from the credit card debt that so many have amassed, and he thinks an interest rate cap is the way to go about it. What I find amusing is that Trump called Harris' plan to implement price controls on groceries as communist. But guess what Trump's credit card interest rate cap is? You guessed it--an example of a price control.
I take issue with price controls generally and Trump's proposal is no exception. I criticized the policy recommendation in 2018 when Democrats Bernie Sanders and Alexandria Ocasio-Cortez proposed a 15 percent interest rate cap for credit cards and other consumer loans. As I pointed out then, Trump's interest rate cap would a) cause thousands (if not millions) of Americans to lose their access to the mainstream credit system, and b) lenders will find a way to modify the loan terms to make up for the loss induced by the cap. You can read the libertarian Cato Institute's analysis of Trump's proposal here.
The second policy proposal is removing cap the state and local tax (SALT) deduction. This deduction allows taxpayers who itemize their deductions to deduct certain state and local taxes from the federal income tax form. Prior to passage of the Tax Cuts and Jobs Act (TCJA), there was no cap. It was with the passage of the TCJA and approval of President Trump that there was a $10,000 cap on the deduction. I would prefer the deduction did not exist because it is costly and it creates perverse incentives for states to increase state-level taxes. I thought the TCJA's cap on the SALT deduction was a step in the right direction in no small part because those who benefit from the SALT deduction are high-income earners in states with high taxes.
It might seem like a hypocritical flip-flop on his end, but Trump's consideration for the SALT deduction is not economic, but rather political. In 2018, the House went from being Republican to Democrat in no small part because the Democrats that were voted in pledged to restore the SALT deduction. Essentially, Trump is using this policy reversal to try to win over states in the blue-state battleground districts so that the Republicans do not lose the House.
A resounding pattern emerges with these policy recommendations from both sides of the political aisle is that the economic impact of what they recommend is not a concern. Why let facts or economic reality get in the way of good politics? Perhaps this has always been the case and what has increased is the magnitude of the problem. But it does make it clear that the myopic nature induced by the election cycle means that getting re-elected or maintaining power plays a bigger role than asking if the policy in question actually makes a positive difference for its citizenry.
No comments:
Post a Comment