Campaign promises are a special kind of lie. Voters know they can’t be kept, yet still love grandiose ideas that sound too good to be true.
Donald Trump made a lot of unkeepable promises during the presidential campaign, and voters rewarded him with a startling victory on Election Day. Now that he’s filling out his cabinet and fleshing out his ideas, the hype from the campaign is morphing into more pragmatic plans that can actually be implemented. Here are four important ways Trump’s economic plan has been changing:
Fewer tax breaks for the wealthy. Trump’s tax plan during the campaign included a huge tax cut for the wealthy, on the supply-side principle that they’d spend more and help create more jobs. In October, the nonpartisan Tax Policy Center estimated that Trump’s plan would save the top 1% of earners an average of $215,000 per year, while middle earners would only save $1,000 or so.
That no longer seems to be the plan. Steve Mnuchin, Trump’s nominee for Treasury Secretary, said recently there will be “no absolute tax cut for the wealthy.” What he means by “absolute” is that tax rates will still come down, perhaps according to Trump’s original plan, which would lower the top rate from 39.6% to 33%. But Trump would also put new limits on the amount of deductions filers can claim, and the wealthy tend to claim far more deductions than other filers, for things like charitable deductions, state and local taxes, deferred retirement savings and mortgage interest on second homes.
It’s certainly possible to cap deductions at a level that would offset gains from a lower tax rate. That would insulate Trump from criticism that his policies favor the wealthy, and limit the increase in deficit spending needed to finance a tax cut. If done right, such zero-sum tax reform would also leave more room for genuine middle-class tax cuts. Of course, tax reform could also be dressed up to look like a middle-class benefit, but with arcane provisions that surreptitiously favor the rich.
A softer touch on trade. Trump talks tough about punishing trade partners if they don’t help create more American jobs, but Trump’s nominee for commerce secretary, Wilbur Ross, is far more diplomatic. He recently told Yahoo Finance, “there aren’t going to be trade wars,” and explained why: The Trump administration will start by asking trading partners such as China and Mexico to buy more American-made products. Examples: energy and cotton. It will also ask trading partners to reduce their own limits on imports from the United States. Threats of tariffs would only be used as a cudgel if other tactics fail. If Ross is right, it will be a huge relief for big US companies heavily reliant on trade.
A lower infrastructure target. The Trump campaign plan called for $1 trillion in new infrastructure spending. The target has now been cut to $550 billion, according to Trump’s transition web site. This plan is likely to change a lot more. Trump wants to tap private investors for most of the new spending, but that would only work on toll roads or other projects with user fees that send a revenue stream back to investors. Congress seems very unlikely to turn US highways over to private owners charging tolls, and it will probably never approve a tab as high as $550 billion in taxpayer funds. Compromise is the art of the deal, somebody once said.
Janet Yellen is okay after all. Trump strongly suggested that if elected, he’d replace Yellen as chair of the Federal Reserve, arguing that she had politicized the central bank by favoring the policies of President Obama. But Mnuchin and Ross both praised Yellen after receiving their cabinet appointments, reflecting the view of much of the business community that she has been a steady hand on the economy during turbulent times. So expect no fireworks at the Fed. Trump has plenty of other battles to fight.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.