If I toss a term like "dynamic economic analysis" by you, you could be excused for thinking it sounds like a bunch of esoteric nonsense that college professors would sit around and talk about. But it would do you well to be familiar with it, because it's the right way to assess a presidential candidate's economic proposals.
And most of the time, it's not the way the analysts you see in the media do it.
Consider Donald Trump's tax proposal. He would reduce tax rates such that we would have only three rates - 12 percent, 25 percent and 33 percent. There's more to the proposal than that, but let's just consider the rate reductions for a moment. Because tax rates would be lower, you might assume that federal revenue would be less. This type of analysis is called "static analysis," and it assumes that when tax rates are changed, nothing else changes in the economy as a result. Thus, if you were used to levy a tax of 30 percent on $10 million - and you consequently collected $3 million in revenue - a reduction to 20 percent would absolutely, postively, without question yield you $2 million. No more. No less.
Because static analysis assumes that while the tax rate changes, everything else stays exactly the same.
But the real world doesn't work that way. When one economic factor changes, other economic behavior changes in reaction. Trump also proposes to reduce the U.S. corporate tax rate from 35 percent to 15 percent. The liberal looks at that and freaks out because the government will lose revenue equivalent to 20 percent of all U.S. corporate net income.
That's what the liberal thinks will happen. But he fails to understand a lot about what really goes on in the business world. If corporations see 20 percent of their net income suddenly available to them for capital investments, can you imagine how that will change what businesses do? A person who knows nothing about business, or who has an anti-business attitude, might assume they'll just stuff the cash in the pockets of fat-cat executives. In real life, those businesses will look at their needs in a number of areas, from equipment investments to new hires to plant construction or expansion.
If a change like this is made on a nationwide basis, you can safely assume that manufacturing and production will increase across the country. Not only that, but with all that added production, you'll see more deliveries, so the trucking industry will benefit, not to mention rail, shipping and every other mode of transportation.
You can also safely assume that more jobs will be created, which means that while income tax levels may be lower, you'll have more people earning more income and paying taxes on the incomes they earn.
Dynamic analysis accounts for all these things, while static analysis pretends they won't happen. I spent some time on my radio show Friday talking about all this. Here's that segment:
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You might describe all this as the math of economic prosperity. It takes a lot more into account than just what the government gets, or whether "the super-rich pay their fair share" (about which, by the way, the super-rich pay far more than their fair share and have for a long time). A president's tax plan should be designed first to help make the nation more prosperous, and you don't do that by treating everyone who's doing well as an enemy.
And this is really the difference between the two candidates. Hillary's priority whenever someone is doing well is to make sure they pay more and more of what they're making to the government. Trump's priority is to make sure they have capital to invest in all the things that result in wealth creation, productivity boosts and new jobs. And their economic proposals reflect those priorities.
That strikes me as a very easy choice. It should be for anyone who considers prosperity a priority for the nation.
If I toss a term like "dynamic economic analysis" by you, you could be excused for thinking it sounds like a bunch of esoteric nonsense that college professors would sit around and talk about. But it would do you well to be familiar with it, because it's the right way to assess a presidential candidate's economic proposals.
And most of the time, it's not the way the analysts you see in the media do it.
