Home > Uncategorized > Why is Donald Trump’s tax plan ridiculed but the TPP deal gets a pass?

Why is Donald Trump’s tax plan ridiculed but the TPP deal gets a pass?

from Dean Baker

Trade deals seem to enjoy a special status among economists. While they are happy to use the economic toolbox to take apart policy proposals on minimum wage, financial regulation or almost anything else, for some reason they don’t like to use standard economic tools when it comes to the impact of trade deals like the Trans-Pacific Partnership (TPP).

There was no shortage of economists who were prepared to ridicule Donald Trump’s claim that his tax cut proposal would lead to 6% annual GDP growth. But where are the economists who will ridicule the Obama administration’s claims that the this new trade deal will lead to more rapid growth?

There is an argument that lower trade barriers increase growth, but this story doesn’t really apply in this case. The problem is that most of the barriers between the countries in the new pact have already been removed. The agreement will not do much to lower barriers to trade between the US and Canada since Nafta already eliminated most barriers. We currently have trade deals with six of the 11 TPP countries. The existing tariff barriers with Japan and New Zealand are already low. Reducing barriers with Vietnam might have some impact, but it is not that large an economy and it is located on the other side of the planet.

This is why efforts to analyze the impact of the TPP on growth have found little or no effect. An analysis by the United States Department of Agriculture found the impact would be negligible. An analysis by the Peterson Institute found that the cumulative gains after 12 years, when most of the trade deal’s impact will have been seen, were just 0.07%. A more recent study upped this to 0.4%.

The most optimistic of these estimates implies a boost to the annual growth rate of 0.03% points. If growth would have averaged 2.20% over the next decade without the TPP, the optimistic projections show growth averaging 2.23% annually due to the trade deal.

This projection is optimistic not only because it is the highest number available, it is optimistic because it doesn’t take account of the parts of the deal that are likely to slow growth. Specifically, the deal will lead to stronger patent and copyright protections, which will raise the price of the protected products, most notably prescription drugs.

The United States currently spends $400bn a year on prescription drugs, or 2.2% of GDP. Tariff on most products are typically in the range of 5-10%. Patent protection can raise the price of a drug a hundredfold, the equivalent of a 10,000% tariff. Patent monopolies are the reason that some drugs cost tens or even hundreds of thousands of dollars a year. Without patent protection, the overwhelming majority of drugs would be available at $10-$20 a prescription.

In addition to jeopardizing people’s health and lives, the higher prices we will pay for drugs due to the new agreement will also slow the economy. The money paid for drugs is money pulled out of people’s pockets. For some reason, economists don’t like to include the drag on growth from patent monopolies when calculating the impact of the TPP. But this drag on growth does not disappear just because economists don’t want to talk about it. Whatever increase we see in drug prices in the US, the impact of stronger protection on growth, as well as on people’s health, is likely to be far greater in the other pacific rim countries.

In addition to the hit to public health and economic growth from stronger patent protection, the trade deal raises a long list of regulatory issues. Top on this list is the investor-state dispute settlement (ISDS) mechanism, essentially an extra-judicial legal system which is created exclusively for the benefit of foreign investors. The scope of the mechanism was supposedly lessened in response to public opposition, but we will only know its status for certain when the text is made public.

The agreement excluded one of the most important trade issues facing the United States: setting currency values. The United States has a large trade deficit primarily because several countries, including some in the TPP, have bought huge amounts of dollars in order to prop up the dollar against their currencies. This has the same effect in promoting their exports and limiting their imports as if they had a subsidy on exports and a tariff on imports.

The Obama administration opted not to include currency values in the deal. The loss of good-paying manufacturing jobs due to the trade deficit is apparently not a priority. Yet, well-connected companies like GE produce much of their output overseas and are happy to see the dollar remain over-valued.

The lack of interest in currency rules says pretty much everything we need to know about the TPP. It was a deal done for corporate interests over the heads of the American people. Now we get to see how our representatives in Congress will respond on the final vote, in an election year.

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  1. October 7, 2015 at 2:56 am

    I agree the TPP was done for corporate interests. Particularly, multinational corporations. But how do you respond to President Obama’s comment when he announced the TPP, A deal consistent with American values, he said. Dean, you don’t seem to agree.

  2. October 7, 2015 at 4:11 pm

    ” A deal consistent with American values, he said. Dean, you don’t seem to agree.”

    Maybe , perhaps Obama does not realize that there is a difference between American PEOPLE values
    and American CORPORATE values, and that corporate values rule!
    As Frederick Soddy said, “… It is concerned less with the details of particular schemes of monetary reform that have been advocated than with the general principles to which, in the author’s opinion, every monetary system must at long last conform, if it is to fulfil its proper role as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government. ”( http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt
    THE ROLE OF MONEY…a complete free download.)

    ***As for the Trump Tax Plan-
    Subject: TRUMP IT !

    Tax Reform That Will Make America Great Again
    The Goals Of Donald J. Trump’s Tax Plan
    https://www.donaldjtrump.com/positions/tax-reform

    Great Plan!!
    But, maybe , perhaps “We will also phase in a reasonable cap on the conductibility of business interest expenses.” WHY?” ..Should Interest that which goes to the INCOME stream of Private For Profit Banks be deductible at all? These banks have earned over $100 trillion as Interest Income over the last 80 years-we would have Zero debt if we would have had that income and paid for SS and medicare for all.

    The greatest challenge to over come will be slung at you in a million ways, with millions of cries,
    “It can’t be done.”,
    “You will put us in unbearable debt.”
    “We will no longer be able to sustain our sovereignty.”
    So how will you create enough government revenue to create 3-5 million new jobs,
    reduce Federal Personal Income Taxes, increase Social Security, have Medicare for all
    and decrease the National Debt?

    THERE IS A WAY TO DO THAT and adhere to the basic principle-“The way and means for a ‘capitalistic sovereignty’ is to RAISE TAXES should they wish to increase spending.”
    Yet no one explains that there are “other ways” of taxation.
    There is a method available to us that is no only fair but also of such a magnitude that it could fund this great union
    to become…“…a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”

    “Capitalism is the “best” system yet devised by mankind” So Where Did We Go Wrong ?
    “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”, (Do not recall where exact quote, Believe ( Pontifical Council Report?).
    SOLUTION.(A) ADMINISTRATION.

    “LEGISLATE FOR “We the People” WHAT WE HAD LEGISLATED THE CENTRAL BANK TO DO FOR THE Private For Profit Banks (PFPB) ! ISSUE OUR OWN MONEY AS LOANS AND CHARGE A TAX CALLED INTEREST ! ! ! ”

    SOLUTION (B) PROPER CENTRAL BANK USAGE.
    Create an honest Central Bank that shall fund-
    ““We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””

    Comments by Justaluckyfool ( http://bit.ly/MlQWNs )
    ( “You are always welcome to share, copy, plagiarize, improve, etc..any comments.)
    ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),

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