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With a speech yesterday in Detroit, Donald Trump attempted to recover from a rough week on the campaign trail. The topic was the economy, and while many of the ideas were ones he has already discussed, Trump laid out some new ideas, such as a proposal to allow families to deduct child care spending from their income taxes. He also updated his tax plan bringing him more in line with Congressional Republicans. Trump took plenty of jabs at Hillary Clinton, blaming her for Detroit’s economic troubles, and casted himself as the candidate of the future and of change. Diane and her panel discuss Trump’s proposals on taxes, trade and financial regulation.
- David Wessel Director, Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution; author of "Red Ink: Inside the High-Stakes Politics of the Federal Budget."
- Jared Bernstein Senior fellow, Center on Budget and Policy Priorities; former chief economist and economic policy adviser for Vice President Joe Biden
- Peter Navarro Business and economics professor at the University of California-Irvine; policy adviser to the Trump campaign
- Beth Reinhard National politics reporter, The Wall Street Journal.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Republican presidential nominee Donald Trump spoke to a crowd of about 1,000 yesterday in Detroit. He called for tax cuts and a strong critique of trade deals. Here to discuss what he said, how he's distinguishing himself from Hillary Clinton, David Wessel of The Brookings Institution, Jared Bernstein of the Center on Budget and Policy Priorities. Joining us from Laguna Beach, California, Peter Navarro of the University of California Irvine and from Wilmington, North Carolina, Beth Reinhard of The Wall Street Journal.
MS. DIANE REHMI'm sure many of you have thoughts you'd like to share. Give us a call, 800-433-8850. Send us an email to firstname.lastname@example.org. Follow us on Facebook or send us a tweet. And welcome to you all.
MR. DAVID WESSELGood morning.
MR. JARED BERNSTEINThank you.
MS. BETH REINHARDThank you.
MR. PETER NAVARROHow are you, Diane, from Laguna Beach?
NAVARROYou're looking great.
REHMThank you, Peter.
NAVARROYou're looking marvelous.
REHMThank you. I want to start with you, Peter, because before we get to the economics of taxes, I want to ask you about your reaction to Susan Collins saying she will not vote for Donald Trump. She becomes number six of the U.S. Republican senators who have said they will not support the Republican candidate.
NAVARRODiane, we're in one of those historical moments that happens every 50 or 60 years in America where there's a complete reformation of our political parties. And Donald Trump is doing that in the Republican party. He has people in the Republican party who've been free traders, basically, selling out America to foreign interests. He has people in the Republican party who have been nation-builders and regime changers.
NAVARROThese are the kind of people that are not supporting him. What Donald Trump is doing is carrying his message to the American people. It's primarily a message of a strong economy and a strong national defense and it's resonating throughout the land and Donald Trump is much more concerned about what a brick layer or a factory layer thinks about him, a factory worker thinks about him, than he is about Republican establishment figures.
REHMAll right. And...
NAVARROIt would be refreshing if the Republican party would rally around, but clearly, that's not going to happen in this kind of election when the Republican party is essentially being reformed.
REHMAnd tell me your reaction to the 50 or so military advisors or former military advisors who've said that they do not believe Donald Trump should be the president of the United States.
NAVARROWell, I think there are two things to say, just from a journalistic point of view, that's listed as -- being billed as national security advisors. It's not. There are some people in the national security space, but there's a lot of other people there so I think we need to be careful about that. Donald Trump will wear that letter as a badge. These are the same people that got us into Iraq, that got us into Afghanistan, that through Hillary Clinton's trying to build nations and regime change in places like Libya, have got us into a mess in Syria.
NAVARROThe foreign policy establishment inside the Beltway in this country serving in a bipartisan way over the last 15 years has been doing nothing but getting us into fruitless wars, killing Americans, killing innocent civilians around the world. This is not how Donald Trump wants to conduct foreign policy. He will wear that letter as a badge of honor.
REHMAll right. I think David Wessel has a comment.
WESSELYeah. So I think what's interesting from a political point of view is that we know Donald Trump has a core of very strong supporters for whom his message is very appealing. But, as my friend and former colleague at The Journal, Jerry Seib, pointed out, he has to portray himself as a plausible president. In order to win the election, he has to convince people that he -- that they can imagine him in the Oval Office. And I think that when you get six Republican senators or a lot of big-name military people or national security advisors, whatever, it makes it much harder for Donald Trump to win over those people who were having some doubts about him.
WESSELAnd I think that's what's really interesting.
REHMAnd Jared, you have a comment.
BERNSTEINI just wanted to make a quick point. Just a quick point. Donald Trump was a strong supporter of the war in Iraq and I think that's important to put in this mix when we're trying to figure out the kind of dynamics that we're talking about.
BERNSTEINI'm not sure what you mean by that, but it is well documented to be true.
NAVARRODonald Trump has repeatedly said he was against the war in Iraq. He's the one person -- one prominent person who has said that all along. He's never been challenged on that. That's -- you can't spin that.
BERNSTEINNo, not true. I mean, no...
NAVARROYou can spin a lot of things, Jared. You can't spin that.
BERNSTEINIt's not spin. This is a well-documented...
NAVARROThat was George Bush's (unintelligible) Hillary Clinton's war.
BERNSTEIN...fact, but, you know...
REHMOkay. Hold on.
BERNSTEIN...we can post a...
NAVARRORoll out the documents.
BERNSTEIN...evidence on my website later.
REHMOkay. Peter, we're going now to Beth Reinhard. I gather, Beth, you were not at the speech that Trump gave yesterday because of complications with Delta Airlines. But you wrote that you felt it was part of an effort to reboot his campaign. Did you hear a new Trump?
REINHARDWell, we've heard a new Trump before and then he becomes his old Trump, you know, the next time he's in front of a really big crowd at a rally. But this was probably one of his strongest speeches of his campaign. He hit, I think, a note that binds Republicans together, that, you know, Clinton is of the past. He is a change agent. I think that is a powerful mainstream message. And it will be interesting to see if he repeats that when he, you know, hits the campaign trail today in North Carolina later this week and Florida and Pennsylvania or, you know, does he go back to, you know, the kind of rhetoric that provokes the build that wall chants and the lock her up chants, which we've become accustomed to at the rallies.
REHMI am interesting in how many times he was actually interrupted by protestors and how he responded.
REINHARDRight. That was surprising because this was, after all, the Detroit Economic Club so you expected a kind of restrained crowd. So it was surprising. That was, you know, even more protest interruptions than you see at one of his typical outdoor rallies. You know, he -- unlike the way he handles protestors at his rallies, in which, you know, he's been quoted many times saying, you know, get them out, you know, or even sort of seeming to casually suggest that people take their frustrations out on the protestor, he -- when he was at the Detroit Economic Club, you know, waited patiently and didn't say a word and that will be another interesting possible contrast as he goes out on the trail to see if he goes back to, you know, his usual jabs at protesters.
REINHARDAs opposed to yesterday when he was, you know, just kind of quiet and waited for the outbursts to end.
REHMSure. David Wessel, what was your reaction to the economic focus of the speech? Did he present a clear economic policy?
WESSELNo. He did identify some elements of an economic policy. It was interesting that he's modified his tax cut proposal to look a little more like the one that the House Republicans have put together. He mentioned, although he didn't describe, and there's some more details that have come out from the campaign, this tax break for people one -- for child care, which I think has, obviously, an attempt to counter Hillary Clinton's tax break for child care.
WESSELOne thing that's striking is that he seems, unlike people like Paul Ryan, feels no need to say how he's going to pay for anything. So there are a lot of tax cuts. He says he's going to get our allies to pay for some of this military spending, but he doesn't identify, nor does he support the kind of cuts in federal benefit programs that people like Paul Ryan do. So I think it was an outline. I think, as Beth said, it was better delivered 'cause he wasn't freelancing. But do I think that it adds up? No.
WESSELDo I think that we can afford massive tax cuts without paying for them? No. Do I think that his tax proposals would give much more to people at the top than people at the middle? Yes, I do. And I think that's a contrast to what Hillary Clinton is offering.
REHMAnd from you, Peter Navarro, what do you see as the central focus of Trump's economic message?
NAVARROThank you, Diane. Let me see if I can put this in a bigger perspective. That was a historical speech. It was basically harking back to the Reagan revolution in the '80s, with a 21st century twist. And what we have here, Diane, is two competing philosophies. On the one hand, we've gone through 15 years of Keynesian style fiscal and monetary stimulus and thrown in with a lot of Robin Hood economics. So you got Keynes's and Robin Hood permeating both the Bush and Obama administrations.
NAVARROAnd the whole flaw of that philosophy, Diane, is that the assumption is that this is a short run cyclical problem that you can just throw fiscal and monetary stimulus at. So what do we have over the last eight years? We've got, under Obama, the deficit doubling from 10 to $20 trillion.
REHMAll right, Peter. We're going to have to hold off...
NAVARROBut wait a minute.
REHM...on the rest of that because we've got to take a short break. When we come back, I'll come right to you and let you finish that presentation.
REHMAnd welcome back as we talk about Donald Trump's tax plans, which he outlined yesterday in Detroit. With me in the studio, David Wessel of The Brookings Institution, Jared Bernstein of the Center on Budget and Policy Priorities, Peter Navarro joins us from Wilmington, North Carolina. He's professor of business and economics at the University of California Irvine, a policy advisor to the Trump campaign. And Beth Reinhard, a national politics reporter for The Wall Street Journal. She's traveling with the Trump campaign and is going to have to get on that bus very soon.
REHMBut I want to come back to you, Peter Navarro, and get you to briefly, if you would, give us the substance of what you believe is Donald Trump's economic message.
NAVARROSure, Diane. The mistake has been to misdiagnose the problem and use Keynesian fiscal monetary stimulus. It's not -- it's failed -- the Obama administration's failed on that. What Trump sees is a structural problem that's long term. It's related to four main points of the policy compass, which he clearly identified in his speech, energy reform, regulatory reform, tax reform and trade reform. Trump's goal is to double our GDP growth rate back to its historic levels prior to the time China got into the World Trade Organization in 2001.
NAVARROIf we double our GDP growth rate, we will generate millions more jobs, trillions more in tax revenues and we will have an economy that's great again. And this is the struggle. You know, my good friends here on the other side of the fence, whether it's David Wessel or Jared Bernstein, they're looking at this as narrow functional silos, like taxes and saying -- pulling the Robin Hood card. This is a structural problem we face. The Obama administration has failed. The trade policies of Hillary Clinton have failed. And Donald Trump's approach is structural in nature and it hits these four things.
NAVARROBasically, regulatory reform, tax reform, trade reform and energy policy reform. And we -- if we can just simply double our GDP growth rate through those reforms, we will have an American economy that works for America again.
REHMAll right. And to you, Jared Bernstein, I think you think...
BERNSTEINWell, I've been arguing about this for 30 years. Look, there's an old saying in politics, you can put all the lipstick you want on a pig, but it's still a pig and Peter just doled out an amazing amount of lipstick. This is this edifice of supply side trickle-down tax cut fairy dust that we've been trying for decades that allegedly by cutting the taxes of rich people -- by the way, another thing we haven't discussed, Trump's plan eliminates the estate tax. Now, the estate tax is paid by the .2 percent. Not 2 percent, .2 percent of the richest estates. All that does is two things.
BERNSTEINIt increases after tax inequality because it raises the after tax incomes of the most wealthy and does a lot less for everybody else, and very importantly, in a government that's ultimately going to need more, not less, revenue, it stiffs the Treasury of trillions of dollars. Now, originally, Donald Trump's tax plan cost $10 trillion over ten years. That was the score. They got spooked by that number and now they've brought it down to something -- we haven't had the score yet, but maybe it'll be in the 3 to 4 trillion range.
REHMSo this tax plan is different from the one he proposed earlier.
BERNSTEINCorrect. Instead of losing $10 trillion, we don't know for a fact yet, but my guess is it'll lose 3 or $4 trillion. That's still way too much going in exactly the wrong direction. So those are the two things it does. But let me tell you the third thing that it doesn't do. And, again, we've tried this experiment many times over. What it doesn't do is have anything near like the growth effects that Peter and others are trying to sell. Look, I'd love to eat ice cream sundaes all week and never gain a pound, but you can't cut all these revenues and somehow hope to support economic growth. It's never happened.
REHMBeth Reinhard, how was his speech received yesterday?
REINHARDWell, I think one of the things that was notable about it is that it was, you know, considered one of his best speeches, yet, you know, usually you have sort of a chorus of Republicans when their nominee gives a speech like that, you know, singing its praises. And only about maybe a couple emails from members of Congress talking about the speech. I saw Trump himself on Twitter retweeting a few other members, but you know, that's sort of another stark example of when you see that lack of support from the political establishment that he is, you know, wisely trying to turn that to his advantage and may be successful at that.
REINHARDBut it's just another reminder of how unusual this election is.
REHMAll right. Peter Navarro, I want to go back to the four areas you outlined. First, talk about regulation.
NAVARROSure. Obama administration in the last seven years alone has passed over 400 new regulatory rules at a cost of $100 million or more each. And by some estimates, we have a $2 trillion cost burden per year in terms of regulations on our economy. What Trump has said he will do, very specifically, is he will put a moratorium on all new regulatory rules at the White House and, number two, he will go and have every head of every executive agency review every regulation to determine whether they are appropriate.
NAVARROAnd so that's a very specific and detailed plan and it's in sharp contrast to the Clinton/Obama plans. Clinton, for example, wants to put the coal miners out of business, which is a good segue to energy policy. On energy -- go ahead, sure.
REHMBefore we get there, I want to let David Wessel comment on the regulatory.
WESSELI think that what's interesting to me is how you can defend any position these days by -- in the Republican party by saying, well, Ronald Reagan did that. So, you know, you can -- people write books about Reagan's economic policy, but let me just point out some ways in which things are different. It is true that Reagan was against regulation. It is also true that Reagan cut taxes, then reconsidered it and raised them when he realized that the growth effects weren't as great as they were.
WESSELIt is also true that Reagan cut entitlements. He, with Democrats, raised the retirement age on Social Security. So and Reagan was not a protectionist. He did some protectionist things, but he basically pushed us in the direction of free trade. So I -- you have to be careful with this. If it's like Ronald Reagan, it must be good. Well, you can't cherry pick. The second thing is, and I'll make this brief, I think Peter is right, that we do have structural problems, right? There's no doubt about that. We had Keynesian stimulus to get us out of the Great Recession.
WESSELI would argue -- I think Peter and I differ. I think it worked reasonably well. We have less than 5 percent unemployment now. We're in better shape than many other countries, particularly those in Europe and in Japan. But he's right that we do have structural problems. I just don't see that Donald Trump's proposals would solve them, would deal with productivity growth, would deal with inequality, would deal with the inadequacy of our education system. Just cutting taxes and having government step back is not, in my opinion, miraculously going to produce prosperity.
BERNSTEINWell, let me give you -- I think the thing about regulations, it always sounds terrible until you actually drill down and figure out what we're talking about. And some of these are anti-pollution regulations that a lot of people think are important. I'm one of them. But another one, and here's something Donald Trump roundly opposes, is regulating financial markets. So Donald Trump wants to get rid of the Dodd-Frank financial reform and wants to get rid of the Consumer Financial Protection Bureau.
BERNSTEINNow, there are -- we could have a whole other show debating their efficacy, but those regulations were put in place to prevent the kind of catastrophic Wall Street meltdown that got us into this mess in the first place. And one of the things that bothers me about the Trump agenda as laid out yesterday is it sounds a lot like kind of the George W. Bush agenda of supply side trickle down tax cuts, deregulate financial markets, and that got us into this mess in the first place.
REHMAll right. And finally, to you, Beth, because I know you have to leave us, why the change from last September and does what he said yesterday really help the middle class from your vantage point?
REINHARDWell, you know, certainly we're hearing a lot from Democrats and Hillary Clinton, you know, picking apart what Trump talked about yesterday, for example, I think, you know, the one thing that was really new in his speech was talk about a child tax credit -- or break, excuse me, that he didn't give so many details on. It sounds good, but, you know, the truth is that the poorest people don't pay income tax and so that would only help more middle class people who would be able to take that deduction.
REINHARDSo that, I think was an interesting overture for, you know, sort of kitchen table issue like child care, which tend to be the province of Democrats. But when you drill down, it's unclear how much of an impact that would really have.
REHMAll right. Beth Reinhard is national politics reporter for The Wall Street Journal. She's traveling with the Trump campaign. Beth, thanks for joining us.
REINHARDThank you so much for having me.
REHMOkay. And now, back to you, Peter Navarro, let's go to taxes, the second part of Trump's overall message. Exactly, beyond the estate tax, where would he change things?
NAVARROWell, Diane, let me offer you, I think, what's a really important point, which is the synergies between each of the four points of the policy compass. So if you look at the synergy between trade and tax policy, he was in Detroit yesterday, center of the auto industry in this country, and we have a problem with our corporate tax. It's the highest in the world. And what that does is it pushes companies like GM and Ford, as they have done over the last several years, to invest billions in new plant in Mexico rather in Michigan.
NAVARROSo by lowering the corporate tax, you have a situation where you're not trying to enrich multi-national corporations. Rather, you're trying to create a set of incentives to bring them back. And then, more subtly, which is quite suitable for an NPR audience, there is this differential penalizing America between the fact that we use income taxes primarily and a lot of the rest of the world use what they call VAT taxes, value-added taxes. And by a quirk of NAFTA and the World Trade Organization rules, when Mexico sells autos into America, they can get heavy rebates on their VAT taxes.
NAVARROThat's an advantage. Whereas, when we sell cars to Mexico, we can't get rebates on our income tax. So we have, astonishingly, given that we're the Motor City in the auto state, we have a $52 billion trade deficit with Mexico on vehicles alone. And so, when Trump tackles the tax plan, you know, Jared's going to do the Robin Hood, all of that stuff, on it, but it's a very targeted message to work interactively with trade policy, which Jared and I agree on, by the way, as a way of getting our economy going again.
NAVARROSo that's the thrust of tax policy. And if we double our growth rate by hitting all four points of that policy compass, we will generate far more tax revenues than we lose in cutting taxes. And those are the kinds of things that we're not hearing from the Robin Hood critics here.
REHMAll right. Okay. David Wessel, do you want to comment before I go to Jared?
WESSELWell, look, I thought Peter was going to make the case for why we ought to have a value-added tax 'cause he's absolutely right that we have an incompatible system with the rest of the world and some tax economists thing we ought to go there. I think that the idea that we're going to -- I would like to double the rate of growth of the U.S. economy. And if I believe that by pursing the kind of tax cuts that Donald Trump is proposing, we could do that, I would sign on. But I don't see any evidence. And in that, I include people like Glenn Hubbard, the Columbia professor who was an advisor to both the Bushes and who is, among mainstream economists, pretty far along on the supply side spectrum, they all think that these estimates are just somewhere between unrealistic and crazy.
WESSELSo it's a gamble. What if we did cut all these taxes and then we didn't get the growth? Then, what happens?
BERNSTEINWell, then what -- it's not -- I mean, I agree with what David said. I don't know that I'd call it a gamble in the sense that we tried this before. So it's what I would call more of an experiment that hasn't worked with lots of empirical evidence. I recently testified, folks can find this if they Google my name, on supply side evidence, very much in the spirit of which I was just describing. And what I did is I looked for correlations, statistical correlations between every economic variable you can think of, GDP, productivity, jobs, incomes.
BERNSTEINAnd I looked at the correlation between their growth and these tax cuts over time. You can do this across countries as well. And in no case -- I thought maybe in one case, just accidentally things can correlate. In no case did I find the advertised correlation, that if you cut taxes, particularly on the wealthy, you're going to get a bunch of economic growth. And it's just -- it's not a gamble. It's an experiment that's never worked. And so when I hear Peter say if we can double the growth rate, I'm kind of where David is, you know.
BERNSTEINSign me up if we can, but we can't. Now, on the taxes, I want to say one other thing. Corporations like GM or General Electric, whoever he was mentioning, it is true that, A, our corporate tax code is a hot mess, desperately in need of reform, Peter's right about that, and, B, our statutory rate, the 35 percent that's on the books is too high. But that's not what these corporations pay. Not even close. The effective rate that they pay is in the 20s and the reason is is because there's so many loopholes.
BERNSTEINWell, Donald Trump opens up a big, new loophole. I don't know how far we want to get into it right now. It's a little bit technical, but it has to do with what's called pass-through income. And this is the ability of businesses to claim their income, their profits, their earnings at a 15 percent rate instead of 33 percent rate, which is the top rate Trump offered yesterday. Now, here's Jared's first rule of tax avoidance for everyone who wants to learn a little bit about tax avoidance, is if you define an income type preferably like that with a huge differential, that is you can pay 15 percent and 33 percent, all of a sudden, anybody with a tax lawyer figures out that, guess what, that's the type of income I have gobs of.
BERNSTEINSo that's just a recipe for tax avoidance and more revenue loss.
REHMAll right. And we're going now to get into trade policy. I gather one of the things that Donald Trump would like to do is to renegotiate NAFTA, Peter, and what I need you to do in 20 seconds or less, is to say why.
NAVARROWe run a close to $800 billion trade deficit, even as we offshore our production, which depresses business investment. If we simply eliminate that deficit while continuing to trade and increase our domestic investment by bringing our investment home, we will double our growth rate. 20 seconds, got it. Nailed it.
REHMYou got it.
NAVARROI get a ten. It's the Olympics.
REHMPeter Navarro, he is a policy advisor to the Trump campaign. Short break here. When we come back, we'll take your calls, your comments, stay with us.
REHMAs we talk about Donald Trump's tax proposals and energy and regulation and trade thoughts, a speech he delivered yesterday included all of those, Peter Navarro, let's go to you finally on energy before we open the phones.
NAVARROThat's fine, but I'll tell you what, trade is the big dog on this whole plan, and the trade deficit we have is really what's been killing our economy since 2001.
REHMAll right, I want to stop you right there. David Wessel, has our trade policy been killing our economy?
WESSELI think that there's a lot of inevitability of globalization, and I don't think we can pretend that the rest of the world doesn't exist, nor do I want my children to grow up in a world in which they think that our way to prosperity is to keep Indians and Chinese in poverty. However, it is clearly true that the forces of globalization have hurt a lot of Americans. Economists, most economists, Peter is an exception, argue that basically the benefits of trade outweigh the costs, and they make some lip service to we can somehow compensate the people who got hurt.
WESSELI think what we've learned is that the pain of globalization, particularly not Mexico, actually China, has been a lot bigger than had been anticipated, a lot faster and a lot more concentrated with particular industries and communities, and those people have really suffered. And we turn out -- those people vote, and they're really peeved.
REHMIs it going to take at least two generations for that to solve itself, Jared?
BERNSTEINNo, not necessarily. I think that better trade policy could help the current generation. And I think the point here, and I think both campaigns agree on this, and I sometimes scratch my head as to how -- why it took us so long to get there, is that for years what David said has been absolutely correct in that lots of people and their communities, and their communities, have been devastated by being on the wrong side of globalization.
BERNSTEINAnd it's not that it's killing the economy, but you can certainly find places, sectors that have really been seriously hurt over the long term. And for years Republicans and Democrats alike went to them and said, no, your problem is you just don't understand the benefits of globalization, and here's another new trade deal that's going to be better than the last one.
BERNSTEINI'm glad we're debating this stuff now, and I don't think it's going to take two generations, but it will take smart policy to fix it, and it's going to take some revenue, some government revenue. We're going to have to do some direct job creation, some infrastructure investment. You can't do that if you're doing to the Treasury what the Trump tax plan does.
REHMAll right, I'm going to....
NAVARRODiane, can I make a quick comment her?
REHMSure, of course.
NAVARROLook, the record is the record. So for example when Secretary of State Hillary Clinton in 2012 supports the South Korean Free Trade Agreement, right, she goes out and tells the American people it's going to create 70,00 jobs. Four years later the record's clear, we've lost 75,000 jobs, and we doubled our trade deficit with South Korea, and that hurt particularly the auto industry.
NAVARRONow what's wrong there? There's a couple things wrong there. First, we were lied to, or Hillary was naïve about the effects, and secondly that trade agreement didn't have any automatic triggers for renegotiation if it failed to deliver the said benefits. And every trade deal we go into, we're promised the moon, and we wind up with Mars, and it's just not working.
NAVARROI mean, Jared, come on.
NAVARROThe record is the record is the record.
BERNSTEINI want to partly agree with you because what I said a minute ago is that in fact both Democrats and Republicans have been selling this bill of goods to people, basically telling them that they don't understand their own lives, and of course they do understand them. But here's the thing, and I've never heard Peter address this. Donald Trump is kind of Exhibit A for precisely the kind of problems and trade deficit-induced behavior that we're talking about. I mean, this is a guy who does a ton of off shoring production.
NAVARROI'd love to address that.
BERNSTEINAnd has massively exploited...
REHMNot going to get into that.
BERNSTEINHas massive exploited cheap labor abroad. Now there are those who say, look, that's part of globalization, and they've got a point. But it's not something that you can then turn around and say I'm against it because it's his business model.
REHMAll right, I'm going to open the phones now, first to Cheryl in Orlando, Florida. You're on the air.
CHERYLGood morning, Diane, thank you. I just want to say that I don't see how increasing the tax credits and breaks for the rich and corporations makes any sense. Right now corporations are sitting on record amounts of cash that they're not investing, and if the poor and middle class don't have more money, there's no reason for them to -- for corporations to invest because people don't have enough money to buy increased production. That's my comment.
REHMAll right, thanks for calling. Jared?
WESSELJared is nodding in agreement.
BERNSTEINI want to quickly say that "The Diane Rehm Show" gets the smartest callers. That's my comment. Next?
NAVARROBe careful, the next one will be...
REHMAll right, go ahead, Peter.
NAVARROThen let me say something else. Donald Trump has, in his -- he was very specific yesterday about bringing home half-a-trillion dollars in corporate money that's parked offshore because of bad tax policy and bad trade policy. And so yeah, I agree with the caller, we need that money here in America. Donald Trump is very aware of it. And, you know, when Jared says Donald Trump's basically taking advantage of the system, what he said was -- in Cleveland he said who knows better how to unrig the game than somebody who's been forced by the international environment to operate in that.
NAVARROI did this movie about -- there was a guy, Dan Slain, who said when China joined the WTO, I either had to take my factories to China, or I had to go out of business. That's the reality we're in.
BERNSTEINAnd I want people to stay in business here in America.
REHMOkay, here's another reality from Janet in Frederick, Maryland, who says a single mother who earns less than $20,000 as a housekeeper in a nursing home will get nothing from Donald Trump's childcare deduction. First, she does not itemize her deductions. Second, the current tax code already gives her 35 percent of her childcare spending as an addition to her tax fund. Donald Trump probably never heard of the childcare credit, which is money paid directly to the taxpayer, Peter.
NAVARROThe whole thrust of the plan, taxes, trade, regulatory reform, energy reform, is to create millions of new jobs and to raise wages so people can better off and pay for things like childcare. We have to really, really understand that under Obama-Clinton, over the last 15 years, under the bad trade deals, we have not had our average median household income rise in any appreciable fashion. Income is stagnant because our economy is not growing.
NAVARROSo I would ask everybody when they think about the Trump plan to look at it as four points of the compass, look at it as a new Reagan revolution, look at it as the point...
BERNSTEINThat's not responsive, that's not responsive to the question about the childcare tax credit, which he -- he said in the speech one thing, then there's a paragraph in the New York Times that says, well, he actually means something else, that you'd be able to offset your payroll tax, and I think the thing that makes us uncomfortable is the guy is a great marketer, he's clearly an excellent negotiator, but we really don't want to be negotiated with. We'd like to know what exactly is he talking about. So can you explain this childcare tax credit? Is the caller right or not that she's a $20-grand-a-year worker, would she get more or less under that plan than she gets today.
REHMPeter? Uh-oh, did we lose...
NAVARRONo, no, I'm here.
REHMOkay, go ahead.
NAVARROIt's very interesting to me that the dialogue always gets back to these minutia levels and focuses on the tax plan.
REHMNo, no, no, this is not minutia.
BERNSTEINHe's the one who put this -- he put this on the...
NAVARROWe don't see the bigger picture here.
BERNSTEINSo the answer is you don't know the answer?
WESSELIt's fine to say you don't know the answer.
NAVARRODonald Trump puts on -- puts a child tax credit on for working mothers, and he criticized by the left. I don't get that.
WESSELSo look, it's perfectly -- Peter, if you're going to keep doing this, and you're very good at it, it's perfectly legitimate to say you don't know, and I think that one of the problems that Trump has had is that especially on this childcare plan, there's a lot of lurching going on, and they don't quite know what they're going to do, and, you know, that's one of the problems when you're kind of doing this in real time.
WESSELI mean, I will say, and here's a partisan comment, Hillary Clinton's been working on childcare for 30 years, and Donald Trump is a newcomer to it, and I think that's why the plan is, at least as I understand it, tilted towards the wealthy, that is it's a deduction, not a credit.
WESSELBy that I mean the following. You get to deduct your childcare expenses at your tax rate. Well, we have a progressive tax system, which means that that deduction means the most, it's the largest for those at the very top of the scale. For those who don't incur any federal income tax liability, which would be the bottom 44 percent, by the way they pay other taxes, they don't pay federal income tax, it's zero. And that's a problem. It's another regressive part of the plan.
REHMAll right, let's go to Sara in Syracuse, New York. You're on the air.
SARAYes, thank you for taking my call.
SARAI would like to challenge the notion that government regulations are a drag on the economy. Most regulations actually save our economy more money than they cost, and environmental regulations in particular are super cost-effective. A 2013 OMB study showed, for example, that EPA regulations imposed $45 billion in costs but drove $640 billion in benefits. So when Trump talks about getting rid of regulations, he's really talking about shifting costs onto the American public in the form of things like asthma and other health care costs associated with pollution.
REHMAll right, David Wessel?
WESSELWell, I think it's really hard to generalize about regulation. I think it would be foolish to say that all regulation is bad for the economy, and it would be foolish to say it's all good for the economy. The stuff about environmental is interesting, and I'm interested in Peter on this. So a lot of this regulation that we have, are talking about, is meant to address global climate change. Hillary Clinton and Bernie Sanders seem to believe the science that it's a problem. Donald Trump seems to think it's a left-wing conspiracy. Where are you on this?
NAVARROWhere I'm at is when you sign treaties, which require the American taxpayer to pay China and India to not pollute, that's a waste of money, and that's one of the problems Trump has with these climate change treaties. It imposes these silly burdens on the American taxpayer and won't solve any problems in terms of emissions. So, you know, we keep cutting these bad deals, whether it's on trade or climate change or anything...
WESSELSo how would you, if you're not -- so if you're not going to use taxes, and you're not going to use regulation, how would you address the climate change challenge?
NAVARROWhat's interesting is that this country is a model for energy efficiency and in terms of controlling air pollution. We are leading on that in some sense. But the point here is when Donald Trump talks about the global treaties -- let me just through the question back to you, David. Do you think American taxpayers should pay China and India not to pollute?
WESSELI think one reason...
NAVARRODo you in any stretch of the imagination believe that?
WESSELI think one reason that we...
NAVARROYes or no, that's a simple yes or no.
REHMHold on, let him answer.
WESSELI think one reason we have cleaner, a cleaner environment is because of regulation, and if I were running for office, I would be comfortable in telling people that we probably ought to have a carbon tax, price carbon, reduce emissions and that that would benefit us and the rest of the world.
REHMDavid Wessel of the Brookings Institution, and you're listening to the Diane Rehm Show. And now to David in Dallas, Texas, you're on the air.
DAVIDGood morning, I'm enjoying the feisty discussion. This is a lot of fun.
DAVIDFirst Mr. Navarro, I hear you and others talk about this idea of doubling economic growth here, and if we could just do that, and I always wonder, you know, we're so globalized now, we're so interconnected, who's going to give up some of that capacity? Is it going to be China? Is it going to be Brazil? And I once say Jeffrey Immelt defend his position to build trains down in Brazil, I think it was on "60 Minutes," and he said, look, I'm not paid to bring jobs here to the United States.
NAVARROI remember that.
DAVIDWe're building these things in Brazil because the growth is in Brazil, it's not in Peoria, Illinois. And when she pushed back on him, he said, well, that's not what I'm paid to do, I'm not paid for growth. So these policies, sometimes it feels like we're back in 1980, and we're given sort of like a fairy tale, if we could just go back in time and unwind all the complexities of globalization, then maybe we could double our growth rate, but that's not the reality we're living in.
REHMAll right, Peter.
NAVARROSure, you know, and I love that -- I love that question, and let me say this. From 1947 to 2001, the U.S. economy grew at three and a half percent real GDP. When China joined the World Trade Organization at the behest of Bill Clinton, since then, from 2002 to 2015, the GDP growth rate has been cut roughly in half, to 1.8 percent. Now the problem here is that what China did is break every rule in the WTO book. It illegally subsidizes its exports. As we speak it's dumping 100 million tons of steel into our markets. It manipulates its currency. There are things that it does that we can't even control by these trade agreements. So we've seen 70,000 factories close.
REHMSo what would you do? I mean, would you back out?
NAVARROWhat would we do? Yes, exactly, Diane, what would we do, we would force China to stop cheating, and if they're not going to stop cheating, then we have what's called defensive countervailing tariffs. It's not fair to American workers to fight China with two hands tied behind their back as they illegally dump 100 million tons of steel into this country.
REHMHow do you deal with China, Jared Hughes?
BERNSTEINWell, I actually think that it's important to push back on currency manipulation.
BERNSTEINSo we agree on that point.
NAVARROHow about dumping?
BERNSTEINIt's something that's widely agreed upon.
REHMDumping is a very, very technical term. I don't know that the U.S. has determined...
BERNSTEINWe have agencies that determine whether there's dumping.
BERNSTEINWhich means selling an export under price.
BERNSTEINAnd China often gets dinged by that, and as they should. So I think what Peter and I would agree on, and by the way so would probably Trump and Clinton, is that we very much have to dial up anti-currency manipulation matters and some anti-dumping ideas. There's a lot of stuff in this ilk, international dispute settlements. You could do a good show on this, in my humble opinion, environmental and labor rights, that get into these trade agreements and how they're poorly scripted, how they're scripted with corporations at the center instead of working people.
BERNSTEINSo there is an agenda there that needs to occur. But where I think the caller is onto something that Peter is kind of wiggling around and not getting to the question is this notion that you could double growth by just slashing taxes, by cutting the estate tax, by taking the (unintelligible) rate down to 15 percent. All of these details, they don't amount to anything more than the same kind of supply-side, trickle-down fairy dust we've always been sold.
BERNSTEINAnd there is an element of nostalgia in it that has nothing to do with real economics.
REHMAll right, Peter, I'm going to give you the last word. You've got 30 seconds.
NAVARROIf we simply eliminate our trade deficit, we will double our growth rate. That's a fact. That's been the problem. If you'll just look at our historic growth rates. I would ask the American people to give this plan of Trump a chance because what Clinton and Obama have been doing, that whiskey's not working. We need to grow.
REHMPeter Navarro, he is at the University of California at Irvine. He joined us from Laguna Beach, California. Here in the studio, Jared Bernstein of the Center on Budget and Policy Priorities, former chief economist for Vice President Joe Biden. And David Wessel of the Brookings Institution. Thank you all.
WESSELThank you, Diane.
NAVARROThank you so much, Diane.
REHMAnd thanks for listening, all. I'm Diane Rehm.
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