By MICHAEL ROBERTS*
The Winner of Every US “Election” Is Wall Street
In a way, it doesn’t matter who wins for big finance and big business: they won’t be badly affected. Both candidates are loyal to the capitalist system and want nothing more than to make it work better for the owners of capital. And this opinion doesn’t just come from a critical position. Consider what Larry Fink of BlackRock, the world’s largest asset manager, said: “I’m tired of hearing that this is the most important election of our lifetimes.”
The reality, says Larry Fink, “is that it doesn’t matter over time.” Now, it is true that the underlying endogenous forces of capitalist production, investment, and profit are far more powerful than any specific policy adopted and implemented by a given government. But politicians who act on behalf of the system may differ on what is best for its functioning at any given moment. Here are some differences between Donald Trump and Kamala Harris on what should be done in the next four years.
The main pillars of what Donald Trump calls “Maganomics” include more aggressive tariffs on imports from around the world, especially those from China, and a draconian crackdown on immigration. His campaign rhetoric also pushes for greater influence over monetary policy and the Fed’s interest rate decisions and dollar manipulation.
Donald Trump says he will “deliver low taxes, low regulations, lower energy costs, low interest rates and low inflation so everyone can afford groceries, a car and a nice house.” The proposed new tax cuts include those on income from overtime pay, tips and pension benefits. But he says he will also make deep cuts to direct taxes for individuals and businesses.
This policy will surely cut taxes for the very rich (again) while raising them for almost everyone else. A study by the Institute for taxation and economic police showed how the cuts will be applied to different income classes. The following graph estimates the increase/reduction in taxes in terms of average values for different income classes:
Donald Trump claims that such tax cuts for the very rich and big corporations will boost investment and growth. He argues based on the discredited “trickle down” theory: if the income and wealth of the rich increases, he says, they will spend more and so the benefits will “trickle down” to the rest of the population. This is shown in the top part of the figure below.
But pay attention to the bottom of the graph; it shows what the empirical evidence has revealed. Over the past 50 years, there has been a dramatic decline in taxes on the rich in advanced democracies. Several studies have shown that this has had little or no effect on economic growth – but it has had a major effect on rising inequality.
Two economists from Kings College London, David Hope and Julian Limberg, used a tax impact model to examine all cases where there were large tax cuts on the rich in 18 Organisation for Economic Co-operation and Development (OECD) countries between 1965 and 2015. In a paper presenting the results of tax cuts on the rich, The economic consequences of major tax cuts for the rich, they showed that such cuts led to greater income inequality in the short and medium term, but that they had no significant effect on economic growth or unemployment.
They found that gross domestic product per capita and unemployment rates remained nearly identical after five years in all countries that cut taxes on the rich, as they did in those that did not. But their analysis found one major change: the incomes of the rich grew much faster in countries where tax rates were cut. No surprise there! This may be obvious from our own experience over the past few decades, but empirical analysis confirms our own insights.
The experience of the Trump administration in the US, when it introduced steep cuts in corporate and personal income taxes, also shows the same. Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley, found that for the first time in a century, the 400 richest American households now have lower effective tax rates than those in the bottom 50%.
Bond investors and Wall Street are worried that these tax cuts, while they may be very welcome for their pocketbooks, could increase the government’s massive budget deficit, as well as public sector debt – something that has become anathema to the financial sector. Donald Trump’s response is that he will “pay” for the tax cuts by dramatically increasing tariffs on imports. Trump plans to impose a 10% tariff on all imports into the US and a 60% tax on goods from China. In fact, Donald Trump is talking about imposing tariffs high enough to allow him to eliminate the income tax altogether!
But the Penn wharton budget model, the result of a research group's efforts, estimated that Donald Trump's plans would increase U.S. budget deficits by $5,8 trillion over the next decade. Even the conservative think tank Tax foundation estimated that the new plan to exempt overtime work from federal taxes would cost the U.S. an additional $227 billion in lost revenue over the next decade.
Empirical analysis of these policies also suggests that they will cause significant damage to US economic performance. A recent study suggests that Donald Trump’s policies entail “sharply regressive changes in tax policy, as they shift the tax burden from the wealthy to the lower-income members of society.” It was developed by Kim Clausing and Mary Lovely to show that the cost of the current damages plus those of Donald Trump’s tariff plans for his second term is expected to reach 1,8 percent of GDP.
They warn that this estimate “does not take into account the damage from potential retaliation by America’s trading partners and other side effects, as well as a loss of competitiveness. The calculation suggests that the costs of Donald Trump’s proposed new tariffs will be nearly five times greater than those caused by Trump’s tariff shocks through the end of 2019, generating additional costs for consumers in this channel alone of about $500 billion per year.” The average impact for a middle-income family would be $1.700 per year. The poorest 50% of families, who tend to spend a larger proportion of their earnings, will see their disposable income hit by an average of 3,5%.
Donald Trump’s tariff measures would impose high tariffs on imports, at levels last seen in the 1930s, following the passage of the landmark Smoot Hawley Tariff Act. Donald Trump claims that trade barriers will not only raise revenues, but will lead to the restoration of big manufacturing in the United States. When import tariffs were used to protect a burgeoning, nascent manufacturing sector, as they were in the United States in the late XNUMXth and early XNUMXth centuries, they may have helped. But now, in the XNUMXst century, US manufacturing is in relative decline, a trend that will not be reversed by protectionist policies—it is now, as we know, growing intensively only in Asia.
O Peterson Institute for International Economics (PIIE) in Washington calculates that across-the-board 20 percent tariffs combined with a 60 percent tariff on China would trigger an increase of up to $2.600 a year in spending on goods by the average household; and that spending would rise along with inflation. PIIE senior researchers Obstfeld and Kimberly Clausing find that the maximum amount of additional revenue the government could raise—by applying a 50 percent tariff on top—would be $780 billion.
Here’s what they say: “If we wanted to completely replace income tax revenue with a tariff, we would need at least a 70 percent tariff. Only then will people start substituting imports, but that can’t happen without retaliation and so on,” says Tedeschi of the Yale Budget Lab. “It’s impossible to make this economic policy machine work. It probably won’t be possible to raise [tariffs] high enough.”
The other important piece of Maganomics is to drastically reduce immigration. Donald Trump has accused immigrants of “poisoning the lifeblood of our country.” Despite this blatant racism, many Americans are convinced that their standard of living is being affected by a “glut of immigrants.” According to Gallup, 2024 is the first year in nearly two decades that a majority of the American public wants less immigration to the U.S. In the past year alone, the desire to reduce immigration jumped 10 points for Democrats and 15 points for Republicans.
Donald Trump really does want to deport millions of immigrants en masse. A recent report from the American Immigration Council concludes that if the government deports a population of about 13 million people who, in 2022, lack permanent legal status and face possible removal, the cost would be enormous, reaching an estimated $305 billion.
And this fails to take into account the long-term costs of a mass deportation operation, just as it fails to consider the incalculable additional costs required to acquire the institutional capacity to remove more than 13 million people in a short period of time. “To put the scale of detention of more than 13 million undocumented immigrants into context, compare that to the entire U.S. prison and jail population; in 2022, comprising all people detained in local, county, state, and federal prisons and jails, there were 1,9 million people.”
Spread over a decade, the average annual cost would be $88 billion per year; all told, the total cost would be $968 billion. This includes creating and maintaining temporary detention facilities and concentration camps, as well as immigration courts. In addition, an estimated 5,1 million U.S. citizen children live with an undocumented family member. Separating family members would lead to tremendous emotional stress, which could cause economic hardship for many of these mixed-status families who could lose their breadwinners.
But the overall economic damage would also be significant. As I argued in previous post, net immigration has helped the U.S. economy grow at a faster rate than other G7 economies. Losing these workers through mass deportation would reduce U.S. GDP by 4,2 to 6,8 percent. It would also result in a significant reduction in tax revenues. The removal of immigrant labor would disrupt everything from households to businesses, as well as basic infrastructure. As industries suffer, hundreds of thousands of U.S.-born workers could lose their jobs.
A Maganomics Donald Trump’s policies claim to help the average American born in the US, but in reality, of course, his policies would only enrich the very wealthy like him at the expense of everyone else. They would also hurt economic growth and increase inflation. He is heavily backed by individual billionaires such as Elon Musk. They own about 4% of the personal wealth of the US, but have contributed a third of the campaign money raised by Trump, who is also a billionaire.
The irony is that 74% of Americans surveyed would support a 2% annual wealth tax on personal assets above $50 million; 65% support raising the corporate income tax rate, and 61% support raising top income tax rates — the exact opposite of Donald Trump’s policies.
On climate, Donald Trump has made it clear that he will relax regulations and allow more fossil fuel exploration and production – after all, he and Tesla boss Elon Musk agree that global warming is probably not man-made and, in any case, does not pose a serious risk to livelihoods or human lives. Hurricane victims in Florida may not agree with them.
Larry Fink is right. It doesn’t matter who wins. The winner of every U.S. “election” is Wall Street.
*Michael Roberts is an economist. Author, among other books, of The great recession: a marxist view (Lulu Press) [https://amzn.to/3ZUjFFj]
Translation: Eleutério FS Prado.
Originally published on The next recession blog.
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