Donald Trump has killed Reaganomics. And that's okay.
Donald Trump, who moved nearly a hundred delegates closer to the GOP nomination Tuesday, might yet kill off the Republican Party as we know it. An irreparably fractured GOP and a landslide loss to Hillary Clinton might just do the trick. But already his candidacy has undermined the intellectual credibility of modern Republican economics. And that might be a good thing if the end result is an updated agenda that uses data-driven policymaking to solve today's economic challenges — not those of a generation or more ago.
For nearly four decades, GOP domestic policy has been built around "supply-side" economics. In short, this means Republicans believe taxes matter. A lot. Changes in tax rates — by their cumulative impact on the incentives of millions of Americans to work, save, and invest — can have a big effect on economic growth.
It's a defensible position, as far as it goes. And smart supply-siders are cautious in their claims. They deny, for instance, that income tax cuts will immediately supercharge growth and be self-financing through higher government tax revenue. They try to avoid playing into the tired Democratic stereotype of GOPers and conservatives as crazy tax-cutters who think even the slightest rate reduction on the rich will unleash tidal waves of growth and tax revenue — and, by the way, who could really care less about debt and deficits.
Leave all that to Mr. Trump. He embraces the stereotype. He says he wants to deeply cut taxes by some $10-12 trillion over a decade, while also balancing the budget without cutting projected entitlement spending. To meet all those goals, Trumponomics would have to generate growth of more than 10 percent annually over a decade, according to the Committee for a Responsible Federal Budget. And as their analysis notes, real GDP growth would have to be twice as high as the fastest growth period in the last 60 years. Only emerging economies playing catch-up grow that fast. More likely, Trump would dramatically increase the national debt by 50 percent or more, which is bad for growth. In other words, Trump's tax plan is every bit as ridiculous as his plan to build a megawall, conduct mass deportations, and launch many trade wars to "bring the jobs back."
Yet none of this tax nonsense apparently bothers some of the most high-profile advocates of traditional GOP supply-side economics. Take the members of the ad hoc Committee to Unleash Prosperity. Economist Arthur Laffer — the Reagan-era godfather of supply-side economics — says the Trump plan "sounds great" to him. Indeed, Laffer just told The Washington Post that he thinks Americans will find it so compelling that it will help sweep Trump to a landslide victory in November. (Perhaps the first-ever dynamically scored political forecast.) Economic commentator Lawrence Kudlow, another Reaganite supply-sider, calls it "an excellent plan that would substantially grow the American economy." Magazine publisher Steve Forbes is more cautious, calling it "not bad" — probably the most praise he could muster since the Trump plan is not a flat tax.
Actually Trumponomics is bad. Worse than bad. Even taken as an aspirational goal or negotiating position rather than a real-world blueprint — which it almost surely is not — the plan is an intellectually dishonest one. It makes mockery of the idea that the U.S. economy needs realistic tax reform to increase its growth potential. And by embracing the plan at all, supply-siders give aid and comfort to those who wish the U.S. had a tax burden more like Scandinavia or continental Europe. See, Republicans and conservatives don't really care about economic growth or fiscal responsibility, they can say with greater authority, only about lowering rates for the rich.
Moreover, the credibility of supply-siders is being sacrificed for very little. Trump doesn't talk about his tax plan much — at least not compared to immigration and trade. If elected, he would likely backtrack on it as fast as he has other issues, such as vowing to pay off the national debt. Trump is, after all, a policy chameleon who once advocated a giant wealth tax on the rich and in 1991 testified to Congress against the 1986 Reagan tax cuts, calling them an "absolute catastrophe for the country." It's almost as if Trump transparently cooked up an over-the-top plan merely to win the support of some key influential GOPers during the primary season. And then pivot away.
Maybe the best case scenario here is that this tax-driven embrace of Trumpism finally ends the dominance of old-school supply-siderism on GOP economic thinking. Imagine a future Republican presidential primary where it isn't always 1980, where candidates don't feel compelled to play ersatz Reagan and offer fantasy tax plans as the price of admission. Imagine candidates competing to have the most detailed, evidence-backed plan to improve higher education or reduce poverty. Maybe then "supply-side" reform to boost the labor supply and innovation can mean something broader that mega-tax cuts: regulatory reform, education, and public investment in basic research and infrastructure. And America can again have an effective center-right party.