I have to admit, I’m looking forward to the Republican debate on Wednesday. Love him or hate him, Donald Trump’s candor is entertaining. It’s somewhat fun to watch him dismiss his political opponents (including the sitting president) as “losers” and “lightweights,” and his critiques of my industry—which he refers to as “those hedge fund guys”—are mostly spot on. Too many big fund managers really are little more than under-taxed, economically destructive financial engineers. Trump’s strident anti-immigrant rhetoric is far more troubling, but it’s not hard to see why it appeals to voters who feel left behind by globalization and the increasingly polyglot composition of America’s electorate.
Most economic studies show that immigration, legal and illegal, is a net contributor, not a cost, to economic growth. Three decades ago, the legendary University of Chicago economist Milton Friedman noted that the majority of illegal immigrants work, pay income and payroll taxes, but rarely receive government benefits like Social Security and Medicare. Mr. Trump, on the other hand, has frequently been on the receiving end of government largesse. Despite his professed belief in free markets, he is the prototypical crony capitalist. Without all sorts of tax breaks, debt forgiveness, and giveaways, he would be far less rich.
As was noted in the first Republican debate, Trump has put four businesses into bankruptcy, including his ill-fated Atlantic City casinos. Because none of the casino debt was collateralized by other Trump entities (or personally guaranteed by Trump himself), the losers were employees, lenders, and federal/state agencies, not the Trump organization. In 1990, Trump’s real estate empire was a mess, with billions in debt at the corporate level and another $900 million at the personal level. Had the banks seized his corporate and personal assets for nonpayment of interest and/or principal, Mr. Trump would be just another financially strapped entertainment lightweight with a reality show. The business equivalent of the Kardashians.
Essentially, Mr. Trump was an early benefactor of the bailout mantra that was later embraced by both political parties, and the popular press, after the 2008 financial crisis. It is surprising that working class folks whose tax dollars were literally thrown at Wall Street firms–and, worse, those firms’ bondholders–appear to be Trump’s most rabid followers. I suggest faster economic growth (yes, four percent annual growth should be the target), fueled by a simpler tax code and entitlement spending reform, will benefit America much more than the mean-spirited rhetoric that has boosted Trump in the polls. During both W’s and Obama’s reigns our nation’s debt has grown rapidly. Our economy has not. Squashing immigration and enacting trade barriers–two ideas Mr. Trump supports–will not alleviate these problems.
Jeb Bush’s tax plan, by contrast, would streamline the US tax code, allow corporations to bring offshore profits home, and eliminate the deductibility of interest. That really would grow the economy. It would also constrict private equity firms who profit on debt-fueled acquisitions. And yet, Bush’s plan has been wrongly derided in the mainstream press as a giveaway to the rich. Meanwhile, those same outlets continue to give Trump wall-to-wall coverage, fueling his Hollywood-esque campaign. That’s a shame. Of course, at this point in the last Republican primary, the frontrunners were a pizza magnate and a shrill congresswoman from Minnesota. Both are long forgotten.