The biggest show on earth: The US election 2016 (2/2)

Hillary Clinton

A click on Hillary’s website shows what the first female presidential nominee in the history of the United States has written down in her extensive political agenda.

Since the target voters of her campaign seem to be families and small businesses, the main focus of her campaign is a drastic reform of the taxation system, which seems purely aimed at their well-being. This is going to be achieved by increasing taxes on the highest income earners in two ways: first, people that have earnings larger than $5 million will be charged a surtax of 4% above the current 39.6%; second, the Buffet rule will be implemented. This states that “no millionaire will pay less than 30% of their income in taxes”.

The main scope of the rule is to tackle the problem that most high-income households tend to classify their compensations as capital gains, which are taxed less heavily. This leads them to pay fewer taxes than individuals belonging to the middle class. In this sense, this is defined as fair taxation.

The other huge category that will be negatively affected by this policy are the corporations. Whereas Mr. Trump wants to lower top taxes to 15% on corporate profits with the aim of preventing companies to relocate overseas due to tax reductions, Mrs. Clinton establishes several provisions to disincentivize companies to invest abroad, among which there is an exit tax for companies that want to merge with smaller foreign companies to take advantage of softer tax rules in their countries. Thus, the main goal of Hillary’s campaign and potential presidency is to collect tax revenues to thebenefit of middle and low-income people. However, is this tax system valuable for the economy as a whole? Research by the Tax Foundation lists the pros and cons of this system. The advantages revolve around the fact that it makes taxation more progressive. The disadvantages revolve around the implications of a heavier tax burden for the economy. The estimates point out that the American GDP will decrease by 2.6% because of reduced savings, investments and consumption caused by hefty taxation, meaning the plan is counterproductive in terms of raising tax revenues (which will decrease to $633 billion from $1.4 trillion). The main sectors in which Clinton will spend these revenues are infrastructures, healthcare and national defense.

Revision of Obama Care

One of the most important battlefields in which Trump might actually have a chance of winning is represented by the Affordable Care Act. The premiums are rising and this has lead Trump to deem it necessary to repeal the Act and thus forcing people that got an insurance to live in pre-insurance conditions. The main problem is that not enough healthy people buy the insurance and they do not balance out the amount of sick people that actually need it with a higher probability. In order to circumvent this issue there are two options: increase the subsidy to low income levels and increase the penalties for non-buyers or establish a public insurance system that causes increased competition among private insurance companies and thus possibly lower the premiums. This would, however,  be very costly forthe federal government. Clinton claims that she intends to lower the premiums to 8.5% of  the household income. She also plans to monitor price changes in prescription drugs in order to avoid excessive pricing by pharmaceutical companies. However, she will find strong opposition from the Republican Party, who despised the Affordable Care Act in the first place and currently considers the Act a “total disaster”, despite the expanded coverage to 20 million Americans.

International trade

Whereas Trump has taken stricter and more radical positions on the biggest American trading partners such as China, Clinton has shown a more conciliatory approach recognizing the important role that China has taken so far in determining the current account of several countries in the world. However, she did not take a specific position in this matter. She claims to abolish or modify any free trade agreement that has decreased U.S employment and harmed American industries, such as the steel industry, in any kind of way. However, there are strong expectations that nothing will actually be implemented since negotiations on these treaties (TTP, TTIP and NAFTA) have been going on for a decade and it is not easy to find a favorable compromise between countries.

With regards to Europe and the conflicted situation on Brexit, the Democrat front runner has maintained a rather negative opinion that if put in practice might damage Britain even further. Moreover, given that the majority of the investors in London are US based, there might be a certain alignment between the potential president and investors, who are definitely not in favor of Brexit. Thus, the probability that Britain will be “at the back of the queue” in case of amendments to trade agreements, such as the TTIP, is very high.

Conclusive Remarks

Recent polls show that only 9% of the Americans still have to make up their mind and that Hillary will win by quite a large margin, unless something unexpected happens. However, assuming that she wins, she will not have an easy and cooperating atmosphere given that Republicans will still pullulate in the House of Representatives for at least two years. This implies that it will be really hard to pursue the changes that she has promised in her broad campaign, since they already have significantly divergent opinions on the key topics of her campaign: progressive taxation, expansion of the Obama Care and a more diplomatic approach to the improvement of trade agreements.

So, what is the score?

Let us start with taxes. Donald wants to lower taxes, both corporate and private. With corporate tax decreasing by 23% we can assume The Netherlands (and Europe in general) to become relatively less favorable for tax reasons. However, considering the huge impact this has on the US debt, these implementations are unlikely to pass. Hillary on the other hand, wants to increase taxes using a progressive tax system. In general this will lead to a higher tax rate for the whole economy and, as provided by the Tax Foundation research, this will result in a decrease of the American GDP by 2.6%. Savings, investments and consumption will also be reduced, meaningthe policy will actually work counterproductive according to the Tax Foundation. With respect to taxes and implementation for our economy, Donald  will be the preferred president.

Next up, international trade. With Donald’s plans to abandon free trade he wants to implement his version of isolationism. As said before, he lacks specific plans to do so and also likely lacks the support from Congress. However, if this does go through, the Mexican economy will be attacked. Also, the Chinese economy will feel the implementations of Donald’s fierce opinion on free trade. No notable change will occur to the EU, although countries heavily dependent on trade with the US, like The Netherlands, will be harmed. Hillary takes a similar direction in her view on international trade, although her approach is much more conciliatory. She acknowledges the importance of, for instance, the trade with China. However, she did state that she is not in favor of free trade in any form that has harmed US employment in the past. Like Donald, she might still just be speculating, considering these negotiations on treaties like for instance TTIP, have been going on for a decades. Comparing Hillary’s modest approach to Donald’s pre-historic isolationism, we have to give this one to Hillary.

Finally, Barack’s biggest achievement is Obama Care. This has caused a lot of joy and hate all over the US and has been a topic of almostevery debate during this election. Where Trump wants to completely abandonObama Care, Hillary takes a more moderate approach. However, changes to the program seem inevitable. Hillary’s attempt to save Obama Care in support of Barack Obama seems to displease the voters and Trump’s biggest edge on Hillary in the elimination of Obama care.

So what’s there to worry? Concluding this article we can say the US will be better off with Hillary as their next president. Looking at Trump’s plans and the implication for the European Union, he would be the better option. With Hillary leading in most polls by a large margin, this election seems decided. However, with every election, we have to keep in mind that it’s just two dogs big mouthing over one big bone. Who knows what will happen once these elections are over. All we know is that we mostly just have our own problems to worry about. The biggest show on earth is about to reach its season finale. Who would you vote for?