5 Questions About Donald Trump's Cabinet Picks And His Economic Plan

Dec 1, 2016
Originally published on December 1, 2016 10:13 pm

Donald Trump won the presidential election after a campaign filled with populist and anti-Wall Street rhetoric. In the past couple of days, the president-elect has chosen his top economic policy team.

NPR's John Ydstie talks with All Things Considered host Audie Cornish about whether Trump's choices match up with his rhetoric.

So, two Wall Street veterans in top economic posts — Steve Mnuchin for Treasury secretary and Wilbur Ross for commerce secretary. That doesn't sound very populist.

Right, these are two wealthy individuals who made lots of money on Wall Street. At least one is a billionaire, Ross, who's made a fortune buying and restructuring distressed industrial companies.

Mnuchin is a veteran of Goldman Sachs who currently runs a private hedge fund, Dune Capital Management. And, back during the financial crisis, he and some partners bought a failed California bank, IndyMac, from the Federal Deposit Insurance Corp. After renaming it OneWest and managing it for seven years, they sold it for a $1.5 billion profit in 2015. Critics say the bank was a foreclosure machine, foreclosing on 36,000 homeowners, and that under Mnuchin it failed to help owners modify their loans so they could keep their homes.

So, neither comes off as much of a populist, but both are viewed as smart, solid, very capable businessmen.

And do we presume that their allegiances remain with Wall Street, or will they use their business smarts to help Trump's "forgotten middle class"?

Well, Wall Street appears to think it will do very well. Stocks are up sharply since the election and big Wall Street banks have enjoyed big gains, partly because Trump has promised to roll back banking regulations.

But I think Mnuchin and Ross would say the stock market is mostly responding positively to the centerpiece of Donald Trump's economic plan — his huge tax-cut proposal. It would cut the corporate tax rate from 35 percent to 15 percent. They say that's going to boost business investment, create more jobs, and produce faster growth and higher wages. They also say the individual tax plan, which reduces the top rate from 39 percent to 33 percent, but also puts a cap on deductions, will provide a big income tax cut for the middle class, but no reduction in taxes for the rich.

So, that's basically how they address this question of whether Trump's policies will match his populist message.

But tax analysts take issue with those claims.

Well, that's right. Both conservative and liberal tax experts say the rich will actually gain the most. They also say the tax plan will add between $3 trillion and $6 trillion to deficits over the next 10 years, which would hurt long-term growth.

Trump has said he would walk away from trade agreements like NAFTA. Is that going to happen?

Ross will be an interesting player here. He has owned companies in the steel industry, for instance, that have faced intense foreign competition, but also benefited from protectionism. He's moved production overseas and dealt with all kinds of trade issues. He argues the U.S. is hurt by big multination trade deals like the Trans-Pacific Partnership, which Trump says he'll scuttle. Ross says you can make better deals negotiating with countries one by one. That would be a significant change in approach from the past 20 years with the potential for big economic effects — both positive and negative. It's going to be interesting to see how it plays out.

What about these claims from Mnuchin and Ross that their policies will boost the U.S. growth rate to between 3 percent and 4 percent a year — about twice what it is now. Is that realistic?

There's a good deal of skepticism that that pace of growth could be sustained for very long. Demographics is a big reason. Growth in the labor force is one big determinant of the economy's growth rate. Back when the baby boom was entering the workforce, the U.S. could grow at those rates because the economy was adding large amounts of workers. But now the baby boom is leaving the workforce, and the labor force is barely growing. Many economists think that will limit U.S. growth to closer to the 2 percent range going forward.

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AUDIE CORNISH, HOST:

Donald Trump campaigned for president as a populist. He railed against Wall Street. But now as president-elect, he's tapped Wall Street veterans for key economic posts - Stephen Mnuchin for Treasury secretary, and Wilbur Ross for secretary of commerce. NPR economic correspondent John Ydstie joins us now to talk about how Trump's choices match up with his campaign rhetoric. And, John, it sounds like these choices aren't very populist.

JOHN YDSTIE, BYLINE: Right. These are two very wealthy individuals who made lots of money on Wall Street. At least one, Wilbur Ross, is a billionaire who made a fortune buying and restructuring distressed industrial companies. The other, Steve Mnuchin, is a veteran of Goldman Sachs who currently runs a private hedge fund.

And back during the financial crisis, he and some partners bought a failed California bank from the FDIC. After managing it for seven years, they sold it for a tidy $1.5 billion profit. Critics called the bank a foreclosure machine and say that under Mnuchin it failed to help homeowners modify their loans so they could keep their homes. So neither comes off as much of a populist, but both are viewed as smart, solid, very capable businessmen.

AUDIE CORNISH, HOST:

Right. Stocks have actually been up sharply since the election. Wall Street seems to like the direction Trump is going in. So can we read that the market thinks these guys are on their side?

YDSTIE: Well, you know, big banks have enjoyed big gains during this - since the election partly because Trump has promised to roll back banking regulations. But I think Mnuchin and Ross would say the stock market is mostly responding positively to the centerpiece of Donald Trump's economic plan - his huge tax cut proposal. It would cut the corporate tax rate from 35 percent way down to 15 percent. They say that's going to boost business investment, create more jobs and produce faster growth and higher wages. And they say the individual part of the tax plan will provide a big income tax cut for the middle class but no reduction in taxes for the rich.

CORNISH: So that's basically how they address this question of whether Trump's policies will match his populist message. But you've reported on this, and you've talked with tax analysts who take issue with those claims, right?

YDSTIE: That's right. Both conservative and liberal tax experts say the rich will actually gain the most. They also say the big tax plan will add between $3 trillion and $6 trillion to the deficits over the next 10 years, which would actually hurt long-term growth.

CORNISH: Now, what about trade policy because Donald Trump said he would walk away from trade agreements like NAFTA that he says are bad for workers. So with these kind of Wall Street veterans at the helm, is that likely to happen?

YDSTIE: Well, you know, Wilbur Ross will be an interesting player here. He's owned companies in the steel industry, for instance, that have faced intense foreign competition but also benefited from protectionism. He's moved factories overseas. He's dealt with all kinds of trade issues. He argues that the U.S. is actually hurt by these big, multi-nation trade deals like the Transpacific Partnership which Trump says he'll scuttle. Ross says you can make better deals in negotiating with countries one by one. That would be a significant change from the approach of the last 20 years, with the potential for big economic effects, both positive and negative. So it's going to be interesting to see how it all plays out.

CORNISH: That's NPR's John Ydstie. John, thank you.

YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.