STEVE INSKEEP, HOST:
Let's listen to key parts of an economic speech by Donald Trump. The Republican presidential candidate spoke yesterday in Detroit, and he offered an outline of a newly revised tax plan, along with a generous helping of protectionist policies he's said in the past, plus a critique of economic trouble in Detroit. Let's work through some of the points with Jared Bernstein of the Center on Budget and Policy Priorities, a former adviser to President Obama. He's in our studios. Good morning.
JARED BERNSTEIN: Good morning.
INSKEEP: And also sitting with us here is Peter Morici, a professor at the University of Maryland, a syndicated columnist and a conservative economist. Good morning to you.
PETER MORICI: Good morning.
INSKEEP: And let's start with a big central point of Trump's speech. Let's just listen together to some of this. He was talking here about taxes.
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DONALD TRUMP: I am proposing an across-the-board income tax reduction, especially for middle-income Americans. This will lead to millions of new and really good paying jobs. The rich will pay their fair share, but no one will pay so much that it destroys jobs or undermines our ability as a nation to compete.
INSKEEP: OK, sounds good. So how are you going to do that? Well, Trump had previously come up with a tax bracket plan, which he has now changed. Let's listen to what he says it is now.
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TRUMP: We will work with House Republicans on this plan using the same brackets they have proposed - 12 percent, 25 percent and 33 percent.
INSKEEP: OK, so lower income people 12 percent income tax, 25 percent for middle class, 33 percent for people making more. Gentlemen, what do you hear there?
BERNSTEIN: Well, I hear - and this is Jared - I hear a very much a Republican orthodoxy approach to what I think of as supply side or trickle down kinds of economics...
INSKEEP: I guess you're saying that because he's lowering taxes for the wealthy among other things here.
BERNSTEIN: Well, you know, what we just heard was a little snippet of what he's doing. He also wants to eliminate the estate tax, and he wants to take the corporate tax down from 35 percent to 15 percent. There's also something called pass-through income. I won't get through the technicalities, but that goes to 15 percent is actually a very big deal because that means that everybody who can incorporate into some kind of a partnership, or a kind of an S corporation as they're called, it will be able to pay a tax rate of 15 percent. Now, this has two impacts. It vastly lowers the revenues that the Treasury collects, and it exacerbates after tax inequality.
INSKEEP: Although it cuts people's taxes. Peter Morici, what do you think of that?
MORICI: Well, in order to cut people's taxes, in order to compress rates without losing too much revenue, you've got to eliminate deductions and exemptions in corporate welfare and all the rest. So we're basically talking about going back to the days of Ronald Reagan where you simplify the tax structure and lower the rates. And so - and he'll have to simplify the tax structure. That's not necessarily trickle down. Making it easier for a family of four that has a household income of $60,000 to $70,000 a year and a modest house and a mortgage to file their income tax without the benefit of H&R Block or TurboTax, you know, is a very positive thing. Making it easier to establish a small business because you don't have the complexity is a positive thing.
INSKEEP: Although let's just note - our fact checkers at npr.org realized that although he said what tax brackets he would like he didn't give any details. And when you start talking about simplifying the tax code, that's getting rid of deductions. He didn't say which deductions are going to go.
BERNSTEIN: Yeah, so I...
MORICI: Absolutely, he's got to say something.
INSKEEP: Jared Bernstein, go.
BERNSTEIN: Yeah, no, I think the problem there is that people think that if you have three brackets instead of seven or 10 or 20 it makes a difference to complexity. It doesn't. It doesn't matter how many brackets you have. What drives complexity is the way you have to define your income and all these special privileges that Peter mentioned, and we agree with that. However, as you correctly point out, not only did he not specify them, he actually added some new ones. I will also say that here Peter and I disagree. This isn't going to help the middle class very much. When you - when you end the estate tax, there are only 0.2 percent of estates - not 2 percent - 0.2 percent of estates that even pay the estate tax the exemption. That is, if your estate is worth more than $11 million for a couple, you don't pay anything. So that tells you right there that that's a very regressive tax...
INSKEEP: Peter Morici, do you disagree? You think this is going to help the middle class?
MORICI: Yes, I do, and hinging on the estate tax I think is a bit - takes us off track because it applies to so few people. If you'd make the tax system much simpler, then people can file their own taxes. The IRS becomes much of a less of a hassle in their lives.
BERNSTEIN: But again, I don't know see any simplicity here.
MORICI: No, let me - I let you talk, Jared. Now give me my turn.
BERNSTEIN: Where's the simplicity?
INSKEEP: (Laughter) Go ahead, finish. Go ahead and finish.
MORICI: Well, the thing is if you don't have lots of deductions and exemptions and you don't have a lot of complexity in the way you, for example, compute business taxes, one could make the S corporation tax return, which, you know, people with businesses of $50, $100, $150,000 a year use, it - then it becomes more - comes easier along with other forms of deregulation or streamlining regulation to open a small business. One of the real problems we have in America is the number of small businesses is declining asymptotically.
INSKEEP: And so you want to change the tax code so that it can be done. Although, we have to emphasize, Trump hasn't said how he's going to do that.
MORICI: He's got to pay for it, and he hasn't told us how.
INSKEEP: And his previous tax plan was said by some economists to add $10 trillion to the deficit over a decade.
MORICI: Oh, it's absurd. It's absurd. That's why he's moving.
INSKEEP: And is this any better? Is this any better?
BERNSTEIN: Well, this will actually add less to the deficit, but it's still a big problem in that regard, something - they haven't scored it yet, but maybe it'll go down to $3 trillion or $4 trillion. That's still a massive loss for the Treasury.
INSKEEP: You have alluded to the estate tax a couple of times. I want to listen to what Trump says about the estate tax, or as he calls it - well, let's listen.
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TRUMP: No family will have to pay the death tax. American workers...
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TRUMP: American workers have paid taxes their whole lives, and they should not be taxed again at death. It's just plain wrong.
INSKEEP: Donald Trump in Detroit yesterday. Here's my question, gentlemen. As The New York Times pointed out yesterday, already if you're a couple and you die, you're exempt for the - from the estate tax up to more than $10 million. So you have to be pretty affluent to be paying the estate tax. But Trump says this is to help American workers. Is there a little bait-and-switch, a little sleight of hand in the rhetoric here?
MORICI: It depends on what you consider a small business. Small businesses can be worth $20-$30 million. And if you inherit one, even though it generates an income, say, a million or two a year, and if you inherit one and it's worth that much, then you get involved in the problem of having to sell it to keep the business in the family. Now, that raises the issue of where do we draw the line? I don't think anybody wants a universal estate tax that goes down to a zero estate. So the real debate should be whether it's $10-$15-$20. But the notion that, say, Bill Gates should be able to bequeath all his wealth to his children, that gives us a very ossified society that I don't think either one of us want.
BERNSTEIN: So I have a very different view on this.
INSKEEP: Go ahead.
BERNSTEIN: There are no workers in the classic sense of the word who are paying the estate tax because of this $11 million exemption. And in fact, if you eliminated the estate tax, the average benefit to beneficiaries of that change would get another $3 million on average. So we're not talking about sort of the typical small business. And then Peter actually makes a good point. The small businesses that will be affected here are not very small when you look at their revenues. They have to have many billion - millions or billions of dollars to even qualify. So we're not talking about the hardware store on the corner. We're talking about the hedge fund and the private equity firm. Now, I don't see how you help the economy - and I certainly see how you hurt the Treasury - when you exempt 0.2 percent of estates from this tax.
INSKEEP: Peter Morici, very briefly.
MORICI: Well, if you own, say, three or four car dealerships, you're going to be facing the estate tax. So again, it's a question of where you draw the line. I think if we were after the election, I think it would be easier for Jared and I to agree.
INSKEEP: (Laughter).
BERNSTEIN: Not on that, not on that. I couldn't - I just - to me - what do they call it? - the....
MORICI: Is there something magical about $11 million? How did you come up with $11 million?
INSKEEP: Gentlemen, gentlemen, we've got to move on. We've got to move on. But I guess the point is here that we got a dispute in definition of what constitutes middle income.
BERNSTEIN: Yeah, I think that's right. That's a good way to put it.
INSKEEP: One other thing I want to hear from Donald Trump - he diagnosed a problem with the economy now. He feels that, or he argues that, very few people are working even though the unemployment rate is low. Let's listen to that.
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TRUMP: One in five American households do not have a single member in the labor force, not a single member of the household. These are the real unemployment numbers. The 5-percent figure is one of the biggest hoaxes in American modern politics.
INSKEEP: Jared Bernstein, he's hammering President Obama's record creating jobs there.
BERNSTEIN: Yeah. I think that's a mistake on Trump's part. The Bureau of Labor Statistics has rigorously defined the unemployment rate forever. And it is what he - what they say it is, which is the share of the people who are in the workforce looking for work who can't find it.
INSKEEP: Are there still lots of people who are underemployed or out of the workforce...
BERNSTEIN: Yes. There are lots - there are about 6 million people who are underemployed, and there are lots of people out of the workforce. However, there are not as many as Donald Trump says there are because he includes retirees and kids in school and people like that who are, you know, very legitimately out of the workforce.
INSKEEP: Peter Morici, I'm going to give you the last word.
MORICI: We have nearly 7 million men between the ages of 25 and 54, too old for college, too young to retire, who are not looking for work and are not working. And what we know about them is they're not home tending kids or family responsibilities. They've completely dropped out. Those kinds of statistics didn't exist at that level 20 years ago. So we do have a problem of underemployment.
BERNSTEIN: Yeah, I agree with that.
INSKEEP: Syndicated columnist Peter Morici, University of Maryland, thanks very much for coming by. I really appreciate it.
MORICI: You're welcome.
INSKEEP: We were also joined by Jared Bernstein, economist at the Center on Budget and Policy Priorities. Thanks to you.
BERNSTEIN: Thank you.
INSKEEP: And we've been listening to bits of yesterday's speech on the economy by Republican presidential candidate Donald Trump. We'll be listening a little bit later this week. Hillary Clinton plans her own economic speech in Detroit. Gentlemen are shaking hands here on MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.