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2016 07 28 The Macroeconomic Consequences of Secretary Clintons Economic Policies
2016 07 28 The Macroeconomic Consequences of Secretary Clintons Economic Policies
2016 07 28 The Macroeconomic Consequences of Secretary Clintons Economic Policies
Prepared by
Mark Zandi
Mark.Zandi@moodys.com
Chief Economist
Chris Lafakis
Chris.Lafakis@moodys.com
Director
Adam Ozimek
Adam.Ozimek@moodys.com
Economist
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MOODYS ANALYTICS
July 2016
significant fiscal policy changes are legislated. Federal Reserve policy is determined
by the model in response to job market conditions, inflation, and financial market conditions, which will be impacted by Secretary
Clintons policies.
Secretary Clintons economic proposals
will result in a somewhat stronger U.S. economy. Near-term growth is supported by the
stimulus provided by her spending plans in
combination with much stronger foreign immigration. Increased government spending,
particularly more infrastructure investment
financed primarily by higher taxes on the
well-to-do, acts as an economic stimulant.
Greater government spending adds directly
to GDP and jobs, while the higher tax burden
has an indirect impact through the spending
and saving behavior of high-income households. This mitigates the near-term negative
impact on GDP and jobs since these households will not reduce their spending onefor-one in response to their higher tax bills
and will use their savings and other financial
resources. The higher minimum wage also
crimps employment.
Longer-term growth under Secretary
Clintons policies is somewhat stronger because on net they expand the supply side of
the economythe quantity and quality of
labor and capital needed to produce goods
and services. Most significantly, immigration reform, would greatly increase the
size of the workforce and support stronger
productivity. Her plan to increase spending
on the nations infrastructure will also boost
business competitiveness and productivity.
Her paid family leave plan would lift labor
MOODYS ANALYTICS
July 2016
governments budget
Macroeconomic Impact of the Clinton Policies
deficits. If not for her
Real GDP, 2009$ tril
proposal to eliminate
21.5
No change in economic policy
the sequester
Full adoption of Clinton's economic policies
20.5
across-the-board cuts
to defense and non19.5
defense discretionary
spending that are cur18.5
rently slated to start
back up in 2018her
17.5
policies would be
nearly deficit neutral.
16.5
16
17
18
19
20
21
22
23
24
25
26
That is, the additional
Sources:
BEA,
Moodys
Analytics
government spending she has proposed
would be paid for largely by additional progration reform, the economy will not grow
posed taxes on wealthy and high-income
quite as quickly, but would still be larger
households. Also limiting the negative fiscal
than it would have been with no change in
impact of her policies is the resulting bigger
economic policies.
economy, which generates more tax revenue
Those who would benefit most from Secand less spending on existing income support retary Clintons economic proposals would
programs. The nations debt load as meabe low- and middle-income households.
sured by the ratio of federal debt outstandTheir tax bill is the same as it is today, but
ing to GDP is largely unaffected by her plan.
they are the beneficiaries of increased govUnder the scenario in which all of Secernment assistance and a larger economy.6
retary Clintons stated policies become law
High-income households pay much more in
in the manner proposed, the economy will
taxes under Secretary Clintons policies.
grow somewhat more strongly (see Chart
Even allowing for some variability in the
1). The economic benefits of immigration
accuracy of the economic modeling and unreform and more infrastructure and other
derlying assumptions that drive our analysis,
spending offset the negative effects of the
four basic conclusions regarding the impact
higher minimum wage, tax increases, and
of Secretary Clintons economic proposals
larger budget deficits. By the end of her
can be reached: 1) They will result in a someterm, real GDP would be 1.7% larger than it
what stronger U.S. economy with increased
would be under current law, and there would GDP and more jobs; 2) they will mostly benbe 3.2 million more jobs. During Secretary
efit middle- and lower-income households;
Clintons presidency, the average American
3) they have little impact on the nations
households real after-tax income would infiscal situation, as they result in somewhat
crease by about $2,000, almost $300 more
larger deficits but a mostly unchanged debtthan under current law. Under the scenarios
to-GDP ratio; and 4) they exhibit faith in the
in which Congress significantly waters down
ability of government policy to positively
her policy proposals, particularly on immiinfluence economic behavior.
MOODYS ANALYTICS
On taxes7
Secretary Clinton wants to increase tax
revenues by increasing taxes paid by highincome and wealthy taxpayers. She would
accomplish this by adopting:
July 2016
MOODYS ANALYTICS
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
7.5
102.6
134.3
156.7
161.5
167.3
131.1
139.2
146.1
153.6
161.8
2026 2016-2026
1461.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
7.5
0.0
0.0
0.0
0.0
7.5
0.0
0.0
0.0
0.0
30.4
23.1
0.7
2.4
-6.0
0.0
0.6
1.1
8.5
70.3
3.4
0.0
3.4
2.8
53.9
6.8
1.8
1.8
0.0
54.9
32.7
2.6
4.7
-4.7
0.0
1.1
6.4
12.1
71.5
6.9
0.0
5.7
4.0
48.1
6.8
7.9
7.9
0.0
73.5
35.4
9.6
10.2
-1.5
-0.1
1.1
5.7
13.1
73.3
7.5
-0.1
5.7
4.4
49.0
6.8
10.0
10.0
0.0
85.5
38.0
12.9
12.5
2.1
-0.2
1.2
5.0
14.0
75.2
8.2
-0.2
5.6
4.7
50.1
6.8
0.8
13.4
-12.6
94.3
40.3
13.6
12.8
7.4
-0.3
1.1
4.5
14.9
68.9
8.9
-0.4
5.5
5.0
43.1
6.8
4.2
17.3
-13.1
107.2
42.8
15.7
13.8
15.7
-0.5
0.7
3.1
15.8
17.7
10.3
-0.9
4.3
5.3
-8.1
6.8
6.2
19.9
-13.8
112.4
44.9
16.5
14.5
16.5
-0.5
0.7
3.2
16.6
20.2
10.8
-0.9
4.5
5.5
-6.5
6.8
6.6
20.9
-14.3
118.0
47.1
17.3
15.2
17.3
-0.5
0.7
3.4
17.4
21.0
11.3
-1.0
4.7
5.8
-6.7
6.8
7.1
21.9
-14.8
124.1
49.6
18.2
16.0
18.2
-0.5
0.8
3.6
18.3
21.9
11.9
-1.0
5.0
6.1
-6.9
6.8
7.7
23.1
-15.4
130.4
52.1
19.1
16.8
19.1
-0.6
0.8
3.7
19.2
23.3
12.5
-1.1
5.2
6.4
-6.6
6.8
8.2
24.2
-16.0
930.7
406.0
126.3
118.9
84.2
-3.2
8.8
39.7
150.0
470.7
91.7
-5.5
49.6
50.0
216.9
68.0
60.5
160.5
-100.0
0.0
136.8
259.4
260.5
254.0
265.5
195.0
203.7
211.0
219.1
202.6
2207.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.7
17.1
-11.4
0.0
131.1
28.4
11.4
60.0
5.7
5.7
2.8
17.1
0.0
0.0
17.5
24.2
-16.1
9.5
206.4
40.3
16.1
60.0
8.1
8.1
4.0
24.2
45.7
35.5
19.8
26.2
-17.4
11.1
210.1
43.6
17.4
60.0
8.7
8.7
4.4
26.2
41.1
30.6
21.0
28.1
-18.7
11.6
210.4
46.8
18.7
60.0
9.4
9.4
4.7
28.1
33.4
22.7
21.9
29.8
-19.9
11.9
219.3
49.6
19.9
60.0
9.9
9.9
5.0
29.8
35.2
24.3
23.8
31.6
-21.1
13.3
152.0
52.7
21.1
0.0
10.5
10.5
5.3
31.6
20.2
19.2
24.7
33.2
-22.1
13.6
159.4
55.3
22.1
0.0
11.1
11.1
5.5
33.2
21.2
19.6
25.3
34.8
-23.2
13.7
166.6
58.1
23.2
0.0
11.6
11.6
5.8
34.8
21.4
19.1
34.0
36.6
-24.4
21.8
170.5
61.0
24.4
0.0
12.2
12.2
6.1
36.6
17.9
14.5
12.6
38.5
-25.6
-0.2
177.3
64.1
25.6
0.0
12.8
12.8
6.4
38.5
17.0
12.7
206.3
300.0
-200.0
106.3
1803.1
500.0
200.0
300.0
100.0
100.0
50.0
300.0
253.1
198.3
7.5
-92.5
-98.1
-64.0
-64.5
-64.9
-65.5
-40.8
-745.8
On spending11
Secretary Clinton would use the additional tax revenues to pay for additional
federal government spending. Broadly, there
would be spending increases on infrastructure, education, paid family leave, and economic development. She has also proposed
eliminating the sequesteracross-the-board
4
July 2016
MOODYS ANALYTICS
July 2016
MOODYS ANALYTICS
Assumptions
A number of assumptions are required
in order to quantify Secretary Clintons
economic proposals. These assumptions are
consistent with her stated economic policies and perspectives as represented on her
web site and in her speeches and interviews,
although given anticipated economic and
political constraints, many of them are relaxed in the two other scenarios considered
in this analysis.
On tax policy, we adopt many of the assumptions made by the Tax Policy Center,
but updated to include changes to Secretary
Clintons proposals since the TPCs analysis.
Most notable, we assume an additional $150
billion in additional revenue over 10 years
from another levy on high-income taxpayers, which is used to pay for her recently
expanded proposal for free or subsidized
tuition to college students. We also assume
that revenues are raised through a tax on repatriation of corporate profits currently held
overseas by U.S. multinationals. This is based
on a proposal already put forward by the
6
July 2016
MOODYS ANALYTICS
2017
2018
2019
2020
2021
2022
2023
2024
2025
16,650.2 17,241.6 17,934.6 18,337.5 18,552.9 18,853.5 19,238.5 19,685.6 20,131.4 20,584.4 21,060.5
1.8
3.6
4.0
2.2
1.2
1.6
2.0
2.3
2.3
2.3
2.3
144.4
147.5
151.7
154.3
154.9
155.2
156.5
158.2
159.9
161.6
163.4
% change
1.8
2.1
2.9
1.7
0.4
0.2
0.8
1.1
1.0
1.1
1.1
5.0
4.5
3.7
3.7
4.4
5.0
5.4
5.4
5.4
5.4
5.3
51,241.7 51,928.3 52,894.0 53,257.5 53,279.5 53,436.3 53,635.8 53,934.1 54,255.7 54,641.4 55,057.3
1.8
1.2
1.0
0.7
1.3
1.9
0.7
0.0
0.3
0.4
0.6
0.6
0.7
0.8
240.3
1.4
246.9
2.7
254.0
2.9
261.5
2.9
268.2
2.6
274.6
2.4
280.5
2.2
286.3
2.1
292.0
2.0
297.6
1.9
303.4
1.9
2.8
2.4
1,964.7
1,981.2
2,002.5
1,973.3
2,098.2
2,296.6
2,513.4
2,716.9
2,919.7
3,156.3
3,427.9
1.7
5.7
-4.7
0.8
1.1
-1.5
6.3
9.5
9.4
8.1
7.5
8.1
8.6
2.8
3.6
371.9
383.9
392.4
402.0
415.2
431.4
451.1
473.3
495.8
515.7
530.9
3.4
3.2
2.2
2.4
3.3
3.9
4.6
4.9
4.8
4.0
2.9
0.6
2.1
4.1
4.6
4.5
4.1
3.6
3.2
2.9
2.8
2.7
2.4
3.6
4.2
4.4
4.6
4.6
4.4
3.8
3.8
3.6
3.5
2.4
1.2
% change
2.7
14,059.5 14,923.8 15,939.3 16,764.6 17,723.1 18,765.5 19,896.7 21,101.9 22,278.3 23,274.4 24,412.1
75.9
76.2
76.1
76.3
78.0
79.6
81.2
82.7
83.9
84.3
85.0
-632.7
-725.9
-905.1
-3.4
-3.7
-4.3
-4.5
-4.5
-4.6
-4.7
-4.6
-4.5
-4.5
-4.4
494.3
632.5
823.2
981.5
1031.5
1062.3
1092.8
1117.6
1145.7
1175.7
1206.2
2.7
3.2
3.9
4.5
4.5
4.5
4.5
4.4
4.3
4.3
4.2
Cumulative
Federal budget deficit ($ bil)
Deficit-to-GDP ratio (%)
Government interest payments - federal
($ bil)
Interest-to-GDP ratio (%)
-3,642
-10,742
July 2016
MOODYS ANALYTICS
2017
2018
2019
2020
2021
2022
2023
2024
2025
16,650.3 17,150.2 17,609.9 17,951.4 18,239.3 18,598.7 19,009.9 19,409.5 19,777.9 20,138.0 20,507.8
1.8
3.0
2.7
1.9
1.6
2.0
2.2
2.1
1.9
1.8
1.8
144.4
146.9
149.3
151.0
151.6
152.3
153.4
154.6
155.5
156.4
157.4
% change
1.8
1.7
1.6
1.1
0.5
0.4
0.7
0.7
0.6
0.6
0.6
5.0
4.7
4.6
4.7
5.0
5.1
5.1
5.0
5.0
4.9
4.9
51,241.8 51,801.6 52,509.8 52,822.2 52,989.5 53,286.1 53,670.8 54,065.5 54,466.8 54,901.1 55,378.6
1.2
0.9
0.8
0.8
1.1
1.4
0.6
0.3
0.6
0.7
0.7
0.7
0.8
0.9
240.3
1.4
246.9
2.7
253.8
2.8
260.9
2.8
267.3
2.4
273.4
2.3
279.6
2.3
285.8
2.2
292.1
2.2
298.3
2.1
304.8
2.2
2.7
2.4
1,966.5
1,992.5
2,000.2
2,012.6
2,183.3
2,398.3
2,567.5
2,720.6
2,873.4
3,057.4
3,272.6
2.6
5.2
-4.6
1.3
0.4
0.6
8.5
9.8
7.1
6.0
5.6
6.4
7.0
2.8
3.5
371.9
383.9
392.5
401.9
415.0
431.0
449.4
469.2
489.2
508.4
526.0
3.4
3.2
2.2
2.4
3.3
3.8
4.3
4.4
4.3
3.9
3.5
0.6
2.0
3.6
3.7
3.6
3.6
3.7
3.8
3.7
3.7
3.7
2.4
3.6
4.0
4.0
4.0
4.0
4.1
4.1
4.2
4.2
4.2
2.1
1.2
% change
2.3
14,060.6 14,952.0 15,928.0 16,646.6 17,508.9 18,448.3 19,464.5 20,559.7 21,666.2 22,633.5 23,789.8
75.9
76.7
77.6
77.6
78.7
79.8
80.8
82.0
83.2
83.8
84.8
-640.2
-748.2
-818.7
-903.8
-941.5
-3.5
-3.8
-4.0
-4.2
-4.2
-4.3
-4.3
-4.4
-4.4
-4.5
-4.6
494.3
630.6
806.1
936.6
970.5
1003.5
1047.7
1090.8
1136.4
1182.8
1230.2
2.7
3.2
3.9
4.4
4.4
4.3
4.4
4.4
4.4
4.4
4.4
Cumulative
Federal budget deficit ($ bil)
Deficit-to-GDP ratio (%)
Government interest payments - federal
($ bil)
Interest-to-GDP ratio (%)
-3,412
-10,197
The living standards of the typical American family will improve somewhat due to
Secretary Clintons policies. Real median
household income is higher as a result of her
policies when she leaves office. However,
stock prices and house value are not much
different under her plan than under current law; more corporate profits and larger
household incomes are a plus for asset prices, but they are offset by the negative impact
of higher interest rates.
The economic benefit of Secretary Clintons proposed plans are also evident over
the coming decade. With her plan, GDP is expected to grow by 2.4% per annum through
2026, compared with 2.1% under current
law. By 2026, real GDP is $550 billion or
2.7% larger. This supports 6.1 million more
jobs. Unemployment is largely unchanged
8
July 2016
Near-term stimulus
Near-term economic growth under Secretary Clintons plan is fueled by the stimulus
provided by her spending plans in combination with much stronger foreign immigration.
MOODYS ANALYTICS
Immigration boost
Also boosting the economy, near and
longer term, is Secretary Clintons proposed
reform to immigration laws. Indeed, there
is no policy she has proposed that provides
a more potent boost to the economy than
immigration reform. Driving this is the 10.4
million additional legal immigrants and their
dependents that are expected to come into
the U.S. over the next decade under the new
9
July 2016
Supply-side cross-currents
Secretary Clintons economic policies
also support long-term economic growth by
increasing the supply side of the economy,
namely the amount and quality of labor and
private and public capital and how labor and
capital are combined to produce goods and
services. These policies include immigration
reform and increased public infrastructure,
and policies that increase the supply and
quality of labor, including her College Compact, early childhood education and childcare
support programs, and paid family leave.
The supply-side effects of her policies are
not all positive as they raise marginal tax
MOODYS ANALYTICS
Most studies showing a small employment effect from a higher minimum wage
have examined small minimum wage hikes.36
Businesses are able to adjust by increasing
prices or employee performance standards
and avoid reducing payrolls. However, Secretary Clintons proposal envisages a historically large increase in the minimum wage.
Under her proposed increase, the inflation
adjusted minimum wage in 2021 would be
$10.50, compared with the previous peak of
$8.50 in 1968. The plan would also gradually
increase the tipped minimum wage, which
is currently $2.13, to parity with the regular
minimum wage. Moreover, both the tipped
and regular minimum wage will be indexed
to the growth in median wages and will thus
not be eroded by inflation.
While the weak growth in low-skilled
wages in recent decades is an oft-cited reason to increase the minimum wage, to a significant extent this weak growth reflects low
demand for low-skilled labor caused by globalization and technological change. Raising
the minimum wage to historically high levels
at a time of structurally weak low-skilled
labor demand increases the risk of employment losses. This is consistent with evidence
from the broader labor demand literature
showing that employment is more sensitive
to wage hikes now than it was in the past.37
In addition, the size of Secretary Clintons
minimum wage hike means that it will affect workers in a broader range of industries
than past hikes. These industries include
globally competitive manufacturing, which
is even more responsive to wage increases
than the always minimum-wage-sensitive
service sector.
We thus assume a modest negative
effect of minimum wage hikes on labor
demand similar to that assumed by the
Congressional Budget Office.38 The number
of workers affected by the phase-in of the
minimum wage is estimated using wage
data from the Current Population Survey.
We also account for planned increases in
state minimum wages, different minimum
wages for tipped and non-tipped workers,
and our forecasts of expected average hourly wage growth, inflation, and underlying
labor force growth.39
MOODYS ANALYTICS
Based on this analysis, Secretary Clintons proposed minimum wage hike is found
to have a negative effect on GDP and jobs,
reducing employment by 650,000, equal to
0.4% of all jobs,40 once fully implemented
by 2021.41 However, low-wage workers affected by the minimum wage who hold
onto their jobs, some 14% of all workers,
will benefit from an average increase in
their earnings of 13%. The greater wage
Assumptions
Behind this scenario is the assumption
that Secretary Clintons proposed tax and
government spending increases are substantially reduced; on a static basis, the increase
in tax revenues over the next decade is reduced to $950 billion and spending increases
to $1.65 trillion. The static 10-year budget
deficit of $700 billion is only modestly
lower than in the Secretary Clinton at Face
Value scenario.
In this scenario, we assume that Secretary Clintons proposed 4% surcharge on
taxpayers with incomes of more than $5
million and higher estate and gift taxes do
not get through Congress. Several other
smaller tax initiatives also fail to make it
through, including the risk fee on large financial institutions and the surcharge on
high-income taxpayers. Federal outlays are
reduced commensurately with the lower
tax revenues. The secretarys plan for higher
education is scaled back in line with her initial plan from a few months ago, which only
provides free college tuition for two-year
degrees and means-tested debt-free tuition
11
July 2016
Economic impact
While Secretary Clintons economic
policy proposals are materially scaled back
in this scenario, the economy still benefits
(see Table 4). Real GDP expands by 2.7% per
annum during her presidency, and by the end
of her presidential term in 2020, real GDP is
$170 billion larger than under current law.
This supports 1.6 million additional jobs,
which pushes the unemployment rate down
to 4% by the time she leaves office.
While GDP and job growth in this scenario
falls short of that in the Secretary Clinton at
Face Value scenario, unemployment is somewhat lower in this scenario during her presidential term. This largely reflects slower labor
MOODYS ANALYTICS
2017
2018
2019
2020
2021
2022
2023
2024
2025
16,650.2 17,210.9 17,889.7 18,301.6 18,505.9 18,781.0 19,102.9 19,474.3 19,854.0 20,249.3 20,681.2
1.8
3.4
3.9
2.3
1.1
1.5
1.7
1.9
1.9
2.0
2.1
144.4
147.3
151.3
153.7
153.9
153.9
154.5
155.5
156.5
157.6
158.9
% change
1.8
2.0
2.7
1.6
0.1
-0.0
0.4
0.6
0.6
0.7
0.8
5.0
4.5
3.6
3.4
4.0
4.6
5.1
5.3
5.4
5.5
5.4
51,241.7 51,905.4 52,918.8 53,343.9 53,406.1 53,587.3 53,738.1 53,985.4 54,260.7 54,613.1 55,009.8
1.6
1.0
1.0
0.7
1.3
2.0
0.8
0.1
0.3
0.3
0.5
0.5
0.6
0.7
240.3
1.4
246.9
2.7
254.0
2.9
261.6
3.0
268.6
2.7
275.2
2.5
281.5
2.3
287.6
2.2
293.6
2.1
299.5
2.0
305.5
2.0
2.8
2.4
1,964.7
1,978.1
2,005.7
1,975.6
2,092.8
2,278.1
2,473.8
2,659.4
2,847.6
3,072.9
3,333.6
1.6
5.4
-4.7
0.7
1.4
-1.5
5.9
8.9
8.6
7.5
7.1
7.9
8.5
2.8
3.8
371.9
383.9
392.4
402.2
415.9
432.9
453.8
477.5
502.0
524.1
541.5
3.4
3.2
2.2
2.5
3.4
4.1
4.8
5.2
5.1
4.4
3.3
0.6
2.1
4.1
4.7
4.7
4.5
4.0
3.6
3.2
2.9
2.8
2.4
3.6
4.2
4.5
4.7
4.8
4.7
3.9
4.2
3.9
3.8
2.2
1.2
% change
2.7
14,059.5 14,917.6 15,917.4 16,732.1 17,692.4 18,747.3 19,905.9 21,154.3 22,383.7 23,439.2 24,639.6
75.9
76.3
76.3
76.3
78.0
79.7
81.6
83.4
85.0
85.8
86.8
-632.7
-714.6
-892.0
-3.4
-3.7
-4.3
-4.5
-4.6
-4.6
-4.8
-4.8
-4.8
-4.7
-4.6
494.3
631.8
821.0
983.2
1039.9
1078.9
1117.3
1146.9
1176.4
1205.4
1234.6
2.7
3.2
3.9
4.5
4.6
4.6
4.6
4.5
4.5
4.4
4.3
Cumulative
Federal budget deficit ($ bil)
Deficit-to-GDP ratio (%)
Government interest payments - federal
($ bil)
Interest-to-GDP ratio (%)
-3,619
-10,962
July 2016
Assumptions
We assume in this scenario that a President Clinton must work with a Congress that
has a similar makeup to the current one; it is
Republican-controlled, although the Republican majority in both the Senate and House is
smaller. This scenario is characterized largely
by continued political gridlock.
The $1.65 trillion in tax increases over the
next decade proposed by Secretary Clinton
are cut down to a price tag of only $350
billion. Most of the revenue comes from a
onetime windfall from the repatriation of
corporate profits currently held overseas for
tax purposes. We also assume a small tweak
to the way carried interest is taxed. The increase in government spending is scaled back
to equal the increase in tax revenues. Secretary Clinton is only able to get the increased
funding she wants for more infrastructure
spending and some of what she has requested for early childhood education. Additionally, we assume fewer states opt into the Medicaid expansion provisions of the Affordable
Care Act, reducing the cost of the federal
incentives to convince them otherwise.
As in the previous scenarios, Secretary
Clinton gets her way on immigration reform,
but in this scenario we assume the additional immigration flows are only 250,000
MOODYS ANALYTICS
2017
2018
2019
2020
2021
2022
2023
2024
2025
16,650.2 17,168.3 17,658.5 18,025.8 18,330.0 18,695.4 19,130.0 19,569.9 19,949.3 20,314.7 20,699.9
1.8
3.1
2.9
2.1
1.7
2.0
2.3
2.3
1.9
1.8
1.9
144.4
147.0
149.5
151.2
152.1
152.9
154.3
155.7
156.8
157.8
158.9
% change
1.8
1.8
1.7
1.1
0.6
0.5
0.9
0.9
0.7
0.6
0.7
5.0
4.7
4.5
4.6
4.9
5.1
5.0
4.9
4.8
4.8
4.8
51,241.7 51,818.0 52,557.8 52,901.4 53,044.0 53,299.9 53,666.7 54,071.0 54,441.9 54,847.8 55,289.4
1.3
1.0
0.9
0.8
1.1
1.4
0.7
0.3
0.5
0.7
0.8
0.7
0.7
0.8
240.3
1.4
246.9
2.7
253.9
2.8
261.0
2.8
267.3
2.4
273.4
2.3
279.4
2.2
285.4
2.1
291.4
2.1
297.4
2.1
303.4
2.0
2.7
2.4
1,964.7
1,967.8
1,972.8
1,980.8
2,151.8
2,374.9
2,586.5
2,758.5
2,918.8
3,114.3
3,349.8
2.3
5.5
-4.7
0.2
0.3
0.4
8.6
10.4
8.9
6.6
5.8
6.7
7.6
2.8
3.5
371.9
383.9
392.5
402.1
415.6
432.0
450.8
470.6
489.9
507.6
523.1
3.4
3.2
2.2
2.5
3.3
3.9
4.3
4.4
4.1
3.6
3.0
0.6
2.0
3.7
3.8
3.6
3.5
3.5
3.4
3.4
3.3
3.3
2.4
3.6
4.0
4.0
4.0
3.9
3.9
3.8
3.8
3.8
3.8
2.2
1.2
% change
2.4
14,059.5 14,911.3 15,819.8 16,476.9 17,290.1 18,194.7 19,214.7 20,339.7 21,451.2 22,399.7 23,522.4
75.9
76.4
76.8
76.5
77.3
78.3
79.3
80.6
81.8
82.4
83.5
-632.7
-692.6
-765.8
-852.4
-906.7
-3.4
-3.6
-3.7
-4.0
-4.1
-4.1
-4.4
-4.4
-4.4
-4.4
-4.5
494.3
630.4
805.4
934.1
964.6
992.5
1030.7
1069.7
1111.7
1151.9
1191.0
2.7
3.2
3.9
4.3
4.3
4.3
4.3
4.2
4.2
4.2
4.2
Cumulative
Federal budget deficit ($ bil)
Deficit-to-GDP ratio (%)
Government interest payments - federal
($ bil)
Interest-to-GDP ratio (%)
-3,217
-9,940
Economic impact
With most of Secretary Clintons economic policy proposals failing to become
13
July 2016
MOODYS ANALYTICS
Conclusions
Presidential candidates often put forward
proposals that are as much political statements as firm policy positions. Indeed, Secretary Clintons proposals have become somewhat more expansive in recent weeks as she
has worked to address the policy concerns of
Senator Bernie Sanders, her chief political rival
for the Democratic presidential nomination.
Most notable being a significant scaling up of
the College Compact and the tax increases on
high-income taxpayers needed to pay for it.
But while the policy proposals put forward by candidates are generally overstated,
and no one expects that their proposals will
get through the legislative process and into
law fully intact, they are a statement on their
philosophy and priorities. Secretary Clintons
economic policy proposals should be considered through this lens.
Appendix
This appendix provides the econometric
basis for the marginal propensity to consume
by income quintile estimates used in the
analysis, and the equations in the Moodys
model for the 10-year Treasury yield and federal funds rate.
Coefficient
3.044
0.861
0.759
0.743
0.622
0.485
0.094
-0.023
0.072
-0.733
-0.412
-0.349
0.252
1.250
Adjusted R-square
Durbin-Watson statistic
t-statistic
19.370
21.840
24.710
30.210
9.350
8.080
4.600
-1.890
1.650
0.995
0.733
Note: The variables in this model are cointegrated. Since this is a long-run
model of income inequality, this allows the use of least squares estimation.
Note: Newey-west standard errors are used.
Sources: Census Bureau, BEA, BLS, Moodys Analytics
MOODYS ANALYTICS
Explanatory variables:
10-yr Treasury yield, lagged 1 period
Federal funds rate
S&P Volatility (VIX index)
Federal debt-to-GDP ratio, lagged 1 period
Excess reserves-to-GDP Ratio, lagged 1 period
Adjusted R-square
Durbin-Watson statistic
Coefficient t-statistic
0.827
26.80
0.152
5.75
-0.104
-1.36
0.011
3.25
-0.023
-1.45
0.978
1.522
15
July 2016
Explanatory variables:
Federal funds rate, lagged 1 period
Real potential GDP growth, 3-yr MA
Unemployment gap
Inflation expectations
S&P Volatility (VIX index), 2-qtr MA
Adjusted R-square
Durbin-Watson statistic
Coefficient t-statistic
0.751
17.01
0.126
1.76
-0.264
-3.97
0.454
5.02
-0.262
-1.68
0.96
1.71
MOODYS ANALYTICS
Endnotes
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Moodys Analytics provides economic analysis and does not endorse or support any political party or candidate, including those in the 2016 U.S. presidential election. This paper is part of the companys ongoing analysis of the economic implications of the candidates policy proposals in the 2016 U.S. presidential election.
Moodys Analytics has published a series of reports throughout the election cycle analysing the candidates proposed tax and economic plans.
Some authors of this report have made contributions to the presidential campaigns for Democratic and Republican candidates during this election cycle, and one
author previously served as an economic advisor to the 2008 John McCain presidential campaign.
To help document Secretary Clintons economic policies and positions, this paper includes hyperlinks to the candidates web site and relevant speeches
and interviews.
Moodys Analytics, a unit of Moodys Corporation, provides economic analysis to market participants to help them measure and manage risk. It operates independently of Moodys Investors Service, the credit ratings agency.
A detailed description of the Moodys Analytics model of the U.S. economy is available here. More detailed validation documentation is available on request.
Secretary Clinton has intimated that she will soon propose some tax cuts for middle-income taxpayers.
Our analysis of Secretary Clintons tax proposals relies significantly on a similar analysis by the Tax Policy Center.
There is a consensus among economists that the Cadillac tax would reduce costly distortions in the healthcare system.
The complexity of Secretary Clintons tax proposals is provided by Dan White, Candidate Report Card: The Democrats, Economy.com, March 2016.
The Tax Foundation has also done an analysis of the Clinton Tax Plan. It finds that Hillary Clintons plan would raise tax revenue by $498 billion over the next
decade on a static basis. However, the plan would end up collecting $191 billion over the next decade when accounting for decreased economic output in the long
run.
Our analysis of Secretary Clintons spending proposals relies significantly on a similar analysis by the Committee for a Responsible Federal Budget.
The sequester is currently not in effect due to the budget deal achieved at the end of 2013 in the wake of the government shutdown.
Build America Bonds, which supported more than $180 billion in infrastructure spending during the financial crisis, are a more efficient way of helping to finance
infrastructure spending than traditional tax-exempt municipal debt, as tax-exempt municipal debt ends up benefiting not just infrastructure projects but also highincome purchasers of the debt. See the statement of Frank Sammartino, Assistant Director for Tax Analysis of the Congressional Budget Office, in a hearing of the
Senate Finance Committee.
This is defined as tuition low enough that it could be funded through a combination of a realistic family contribution and part-time work rather than
student loans.
Similar to the FAMILY Act sponsored by Senator Kirsten Gillibrand (D-NY). Unlike the FAMILY Act, however, Secretary Clinton does not support an across the board
payroll tax increase to pay for the plan (nor an employer mandate) and instead would pay for it with a portion of her proposed taxes on the wealthy.
Secretary Clinton has stated that we must go further by ending the sequester for both defense and nondefense spending in a balanced way. We assume this is
done in the same manner proposed by President Obama in his fiscal 2017 budget proposal and scored by CBO.
CBO continues that total factor productivity (TFP, the average real output per unit of combined labor and capital services) would be higher by roughly 0.7 percent
in 2023 compared with what would occur under current law. The increase in TFP would make workers and capital alike more productive, leading to higher GDP,
higher wages, and higher interest rates.
Secretary Clinton responded to written questions from the Oregon Fair Trade Campaign: Ive laid out a three-part test for any trade agreement to earn my support:
it must (1) create American jobs, (2) raise wages, and (3) improve our national security. My approach to trade would be to establish and enforce fair rules so that
our workers compete on a level playing field and countries do not race to the bottom on labor, the environment, and so much else. And we can bring others along in
having higher labor, environmental, and other standards.
An excellent and representative study of the macroeconomic impact of the Trans Pacific Partnership agreement is provided by the Peterson Institute.
The results presented in this paper consider the combined impact of all of Secretary Clintons proposals, but the impact of each of the proposals in isolation is available upon request.
We do not include the potential impact of Secretary Clintons proposed infrastructure bank on infrastructure spending in our analysis. In theory, the bank could fund
a significant amount of additional investment. If fashioned off of the Transportation Infrastructure Finance and Innovation Act program, it would provide federal
credit assistance through direct loans, loan guarantees, and lines of credit to finance surface transportation projects. The proposed $25 billion in seed money for the
infrastructure bank could support as much as $250 billion in federal loans over a five-year period. Those loans, in turn, could make up approximately one-third of
total project costs, so in all the infrastructure bank could support as much as $750 billion in total additional infrastructure development. However, given the significant uncertainties involved in the operation and success of such an infrastructure bank, it is not included in our analysis. This is a conservative assumption that likely
understates our estimated economic benefit of Secretary Clintons economic plan.
The impact of government deficits and debt on interest rates is captured in the Moodys Analytics model through the 10-year Treasury yield equation. See Appendix
for a description of this equation.
A discussion of fiscal multipliers during the financial crisis and how they vary depending on where the economy is in the business cycle is provided in Alan Blinder
and Mark Zandi, How the Great Recession Was Brought To An End, Moodys Analytics white paper (2010).
The impact of immigrants on these demand spillovers is assessed in Gihoon Hong and John McLaren, Are Immigrants a Shot in the Arm for the Local Economy, NBER
working paper (2015).
Sherrie A. Kossoudji and Deborah A. Cobb-Clark, Coming out of the shadows: Learning about legal status and wages from the legalized population,Journal of Labor
EconomicsVol. 20.3 (2002): 598-628.
Giovanni Peri, Kevin Shih, and Chad Sparber, STEM Workers, H-1B Visas, and Productivity in U.S. Cities,Journal of Labor EconomicsVol. 33.S1 Part 2 (2015): S225S255.
This is consistent with a recent analysis of the economic impact of federal investment conduct by the Congressional Budget Office, The Macroeconomic and Budgetary Effects of Federal Investment, CBO study (2016).
Susan Marie Dynarski, Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion,American Economic ReviewVol. 93 (2003): 279288. And Thomas J. Kane, Public intervention in post-secondary education, Handbook of the Economics of EducationVol. 2 (2006): 1369-1401.
James J. Heckman, Seong Hyeok Moon, Rodrigo Pinto, Peter A. Savelyev, and Adam Yavitz, The Rate of Return to the High/Scope Perry Preschool Program, Journal of
Public Economics Vol. 94.1 (2010): 114-128.
16 July 2016
MOODYS ANALYTICS
30 Leonard N. Masse and W. Steven Barnett, Comparative Benefit-Cost Analysis of the Abecedarian Program and its Policy Implications, Economics of Education Review
Vol. 26.1 (2007): 113-125. Arthur J. Reynolds, Judy A. Temple, Suh-Ruu Ou, Irma A. Arteaga, and Barry A.B. White. School-Based Early Childhood Education and Age28 Well-Being: Effects by Timing, Dosage, and Subgroups, Science Vol. 333.6040 (2011): 360-364.
31 A study of the take-up on preschool programs is provided by E. U. Cascio and D.W. Schanzenbach, The Impacts of Expanding Access to High-Quality Preschool Education,National Bureau of Economic Research, No. w19735 (2013).
32 For more information on the labor force participation rate impacts a literature review is available in L. J. Bettendorf, E. L. Jongen, and P. Muller, Childcare Subsidies
and Labour SupplyEvidence From a Large Dutch Reform,Labour Economics (2015).
33 Charles L. Baum and Christopher J. Ruhm, The Effects of Paid Family Leave in California on Labor Market Outcomes,Journal of Policy Analysis and Management(2016).
34 According to the Tax Policy Centers analysis of Secretary Clintons tax policies, the marginal effective tax rate on nonresidential business fixed investment would
rise from 23.2% currently to 24.9% under her proposals.
35 The same TPC analysis estimates that the effective tax rate on labor income for all taxpayers would rise from 24.6% currently to 25.1% under Secretary Clintons proposals.
36 See Barry Hirsch, Bruce Kaufman, and Tehyana Zlenska, Minimum Wage Channels of Adjustment, Industrial Relations (2015).
37 See, for example, Andreas Lichter, Andreas Peichl, and Sebastian Siegloch, The Own-Wage Elasticity of Labor Demand: A Meta-Regression Analysis, The Institute for
the Study of Labor working paper (2014).
38 Specifically, our analysis follows a very similar approach and uses the same elasticities for teenagers and adults as the CBO uses in its minimum wage analysis of the
Harkin minimum wage legislation.
39 State minimum wage data come from the Economic Policy Institutes Minimum Wage Tracker. Our analysis does not take into account city-level minimum
wage hikes.
40 These estimates of the job losses due to the minimum wage do not take into account the larger low-skilled labor force that would result from immigration reform.
However, the greater willingness of immigrants to locate to the parts of the country where demand for their labor is highest, and the endogeneity of the migration
decision to labor demand, will minimize the extent to which new immigrants are made jobless by the minimum wage. The responsiveness of migration to labor demand can be seen in the return of many undocumented immigrants to Mexico in the aftermath of the Great Recession.
41 The most convincing recent research has found a meaningful negative effect of a higher minimum wage on employment. See Jonathan Meer and Jeremy West,
Effects of the Minimum Wage on Employment Dynamics, NBER working paper (2015). This paper also shows why other research has had difficulty statistically identifying a negative effect as past minimum wage hikes have been quickly eroded by inflation and minimum wage hikes in other nearby states. Other recent research
uses detailed firm-level data to show that minimum wage hikes cause some businesses to fail and others to come into existence. This suggests that the long-run
effects of minimum wage increases may be significantly larger than the short-run effects usually estimated in the literature, as labor-intensive firms gradually go
out of business and are replaced by firms that use fewer workers. Finally, while much of the past research has relied on data aggregated to the county or state level,
recent research has shown that when individual workers are tracked over time, the 2007-2009 minimum wage hike appears to have had a significant negative effect
on employment.
42 The CES data serve a range of purposes, most notably the construction of the U.S. consumer price index. For reference, according to the 2014 CES survey, those in
the first quintile made less than $15,500 during the year. The second quintile made between $15,500 and $32,000, the third quintile made between $32,000 and
$55,000, the fourth quintile made between $55,000 and $90,000, and the fifth quintile made over $90,000.
43 The Congressional Budget Office (2007) provides a useful survey of this literature with an emphasis on the U.S. experience.
17
July 2016
MOODYS ANALYTICS
MOODYS ANALYTICS