A week ago, Moody’s Analytics released a report finding that taken together, presumptive Republican presidential candidate Donald Trump’s policies would cause the United States to enter a long recession. On Monday, Peter Navarro, a business professor at the University of California-Irvine and an adviser to the campaign, released a response claiming that the Moody’s analysis is full of falsehoods. But most of his defense rests on Trump’s own rhetoric, not economic analysis.
In its analysis, Moody’s included the finding of the non-partisan Tax Policy Center, which concluded that Trump’s tax plan would cost the government $9.5 trillion over a decade based on its own complex modeling. It wasn’t the only place to come to a similar conclusion. The more progressive Citizens for Tax Justice found it would cost $12 trillion over a decade; the more conservative Tax Foundation, which takes into account assumptions that tax cuts spur economic growth, still found it would cost $10.14 trillion over a decade.
But Navarro argues those findings can’t be true because Trump says his tax plan will be revenue neutral. “One of the worst mistakes of the Moody’s report is to ignore the cornerstone of Donald Trump’s tax reform plan, revenue neutrality. This principle is clearly stated on the Trump website,” Navarro’s report says. “It follows that under revenue neutrality, none of the downstream negative effects predicted by the Moody’s report occur.”http://archive.thinkprogress.org/economy/2016/05/04/3775204/trump-economic-policies/ Navarro doesn’t offer his own modeling or analysis. “I don’t have the elaborate model of Moody’s,” he told the Washington Post in an interview. “The basic foundation of my analysis is, ‘garbage in, garbage out.’”
He also argues that Moody’s ignores the beneficial effects of tax cuts, claiming that Trump’s tax plan will “significantly stimulate GDP growth” as well as add jobs and increase tax revenue, citing the effects of President Ronald Reagan’s tax cuts in the 1980s. Trump himself has promised that his plan will increase GDP growth by as much as 6 percent, far more than the current rate of growth. But there is little connection between lower taxes and higher economic growth, as growth has historically been higher under much higher top tax rates, while studies have found that Reagan’s cuts didn’t spur an increase in GDP.
The Moody’s report found negative effects of Trump’s trade policies, particularly levying a 45 percent tariff on imported Chinese goods, which it claims would lead China to retaliate and spark a trade war. But Navarro argues it will never come to that point because Trump will be seen as such a strong and fearsome leader. The likely scenario, he writes, is this: “Under the threat of Trump’s countervailing tariffs, Chinese leaders realize they no longer have a weak leader in the White House, and China ceases its unfair trade practices.” That leads to the elimination of the trade deficit between the United States and China.
Navarro’s rebuttal also argues Moody’s gets things wrong on immigration. Moody’s claimed Trump’s pledge to deport all undocumented immigrants would significantly shrink the labor force and therefore reduce jobs and increase labor costs. Instead, Navarro argues that the jobs will be filled by citizens, particularly African Americans, and that money will be saved through reduced spending on public programs that undocumented immigrants currently utilize and lower law enforcement costs. Other analyses have found that deporting all undocumented immigrants would shrink the labor force by 6.4 percent and reduce GDP by $1.6 trillion.