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If Hillary Clinton wins, few changes are expected... at first

Hillary Clinton's chances of a victory on 8 November seem to be increasing. While her economic programme is not without ambition, it would meet with the opposition of a probably fragmented Congress.

This programme includes substantial new public spending measures, mostly paid for by a rise in the taxation of high income and wealthy households and by measures intended to increase the efficiency of corporate taxation. They include:

  • An infrastructure investment plan, whose amount is substantial, though not spectacular:  $275 billion (1.5% of GDP) over five years.
  • Social spending that could potentially involve bigger figures, including free tuition in public universities for students from lower-income families and an extension of family and sick leave policies. These promises have been ramped up after the unexpected trajectory of Hillary Clinton’s Democratic rival Bernie Sanders over the summer. The CRFB (non-partisan Committee for a Responsible Federal Budget) says they could reach $800 billion over 10 years, even $1100 billion counting a plan to extend the “Obamacare” health-care reform.
  • In terms of taxes, measures targeted at wealthy households include schemes to ensure that they pay at least a minimum  rate of income tax, as well as increases in estate taxes. Measures targeted at corporations aim, among other goals, to limit corporate “inversion” (foreign domiciliation for tax purposes) and at increasing taxes on several types of “risky” behaviours by financial institutions.  Taking into account (at least some of) these higher tax revenues, the CRFB is talking about only a very moderate budget overrun of $200 billion over 10 years for the entire programme (although subject to a number of fragile hypotheses).
  • Her promises also include raising the federal minimum wage from $7.25 to $12 (with efforts to bring it to $15 recently added to move closer to Sanders' position) and easing immigration rules.

In theory, a substantial positive economic effect could be expected from the implementation of this entire programme, even in the short-term. In July, Moody’s estimated the potential gain, in terms of GDP, to be 1.7% in 2020 (when the presidential mandate ends), as spending targeted toward infrastructures and lower-income households, together with increased immigration, would generate more activity than tax hikes and a higher minimum wage would destroy.

In reality, the short term economic impact of Hillary Clinton’s victory would be limited, because while her party can retake the Senate, it will have to deal with a House of Representatives that will in all likelihood remain Republican. Bipartisan compromises can probably be reached on infrastructure spending. On the other components such as social spending and tax increases, they will be much more difficult, in a situation where the Republican Party, after the Trump episode, is likely to experience an identity crisis and fierce internal power struggles.

Therefore, if Hillary Clinton does win, we will probably not change our economic scenario for the US in 2017, which posits a continuation of the recovery at a pace between 1.5% and 2% per year (close to the economy’s long-term potential), yet with the possibility of additional budgetary support should there be an unexpected slowdown.

This does not detract at all from the fact that this election will, very likely, have substantial long-term consequences for the “political offer” in terms of economic policies in the US. Indeed, the campaigns of Bernie Sanders and Donald Trump have showcased the expectations of a good many Democrat and Republican voters for the development of new policies – in opposite directions, but generally less free market-oriented than in the past – to respond to the middle classes' growing distrust with globalization.







PERRIER Tristan , Senior Economist
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If Hillary Clinton wins, few changes are expected... at first
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