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Clinton’s Fiscal Prudence Runs Counter to Krugman’s Call to Borrow

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Hillary Clinton has touted fiscal rectitude as a virtue in her battle for the presidency with self-proclaimed debt king Donald Trump. The trouble is at least one of the country’s most prominent progressive economists doesn’t seem to agree.

While not commenting specifically on Clinton’s economic program, Nobel prize winner Paul Krugman made the case this week that now’s the time for the government to be borrowing more and worrying less about debt. With interest rates so low, he argued that investments in much-needed infrastructure like airports and bridges would pay for themselves by boosting the productive potential of the economy.

“While the politics remain uncertain, it’s clear what we should be doing,” Krugman wrote in an Aug. 8 column in the New York Times. “It’s time for the federal government to borrow and invest.”

Clinton is using an economic speech at a Michigan factory Thursday to attack Trump over the big tax-cut and deregulation program he unveiled in Detroit earlier this week that she says doesn’t add up. The former secretary of state has contrasted the Republican’s plan with her own fiscal prudence, maintaining that her proposed spending increases are offset by equal-sized tax hikes on the wealthy and corporations.

The Math

“He can’t escape the math,” Clinton told a campaign rally in St. Petersburg, Florida, on Aug. 8, while charging that the billionaire developer’s proposals will lead to a recession. In contrast, she said, “I have pointed to what my plans are, what I think will help more people and how we will pay for them.”

That’s got Dean Baker of the liberal Center for Economic and Policy Research worried. He frets that Clinton’s rhetoric will box her in and make it tougher for the government to provide the economy with the help it needs if she wins the election.

“I understand the politics,” said Baker, who co-founded the Washington-based center in 1999. But “I’m very concerned” about how she’s framed the budget issue.

Clinton’s most recent major speech on the economy was in Raleigh, North Carolina, in June, when she sought to reassure Democratic primary voters that she would stick to the positions she’d established over the past year even as she aimed to widen her appeal. Her aides said that in Michigan she’ll delve further into the plans she outlined in Raleigh and point to the contrasts with the vision put out by Trump.

National Polls

The Democratic Party nominee is trying to consolidate and hold a lead she’s built up over Trump in every national poll conducted since the Democratic National Convention at the end of July.

Not everyone agrees with Krugman about the desirability of increased deficit spending. Budget hawks, spearheaded by the Peter G. Peterson Foundation, have pointed to a future of growing government outlays on an aging population in arguing for fiscal prudence now.

“We have a long-term problem,” Peterson, a philanthropist and former Wall Street executive who founded the group in 2008, told a May 11 conference in Washington sponsored by the foundation. We “end up with debt, as many people forecast, two to three times” the size of the economy.

After ballooning to more than $1.5 trillion in 2009 as President Barack Obama pushed through a massive stimulus to combat the recession, the budget deficit fell for six straight years, to around $440 billion in the 12 months ended Sept. 30. Based on current policies, it is projected to begin increasing again this year, driven in part by more spending on Social Security and health care, according to the Congressional Budget Office.

Former White House official Jared Bernstein said the debate in Washington is shifting away from a focus on reducing government red ink.

“The usual question you get in Washington is, ‘Shouldn’t we be reducing the deficit and the debt?’” said Bernstein, a senior fellow at the Center on Budget and Policy Priorities in Washington and former chief economist for Vice President Joe Biden. “And now people are asking, ‘Shouldn’t we be increasing the deficit and the debt?’”

One of the people not shying away from talking about borrowing money to invest in priorities such as infrastructure and the military while rates are low: Trump himself. He recently said he’d more than double Clinton’s $275 billion, five-year proposal to rebuild roads and bridges.

“You need a lot more than that to do it right,” Trump said Thursday on CNBC.

“Normally you would say you want to reduce your debt and I like to reduce debt too, as much as anybody. The problem is you have a military problem, you have an infrastructure problem,” Trump said. “This is the time to borrow.”

Monetary Policy

Indeed, as monetary policy has approached the limit of its effectiveness, there’s been a growing clamor worldwide from economists, investors and even central bankers for governments to do more to support growth. With interest rates as low as they are, “it seems to me there’s a case” for investment-oriented budget policies, Federal Reserve Chair Janet Yellen told the Economic Club of New York on March 29.

Clinton has signaled her opposition to the U.S. taking on more debt to pay for her infrastructure — contrary to what Krugman suggests. The economist did not respond immediately to an e-mail or a phone call seeking comment.

Instead, the Democratic Party’s presidential candidate has pledged to “fully pay for these investments through business tax reform,” according to a fact sheet on her website.

Clinton has suggested she’s open to the government spending money in the short term then making it up with revenue in the longer-run. “I think there can be short-term decisions about the kind of federal dollars that are available now, with a revenue stream to pay them back in the future that would bridge the gap,” she said in June 22 interview with the website.

Bernstein, for one, thinks that’s a good move. “The idea of putting some near-term investment on the deficit that’s paid for in the out years is smart fiscal policy, both in terms of economic growth, getting to full employment sooner and ensuring that the fiscal accounts are in order,” he said.

Tax Plans

Another flashpoint expected in Clinton’s speech Thursday was taxes. She plans to argue that Trump’s proposals amount to a win for him and his rich friends and family, according to a preview from a Clinton campaign official who asked not to be named.

Clinton is dubbing the so-called pass-through provision of Trump’s tax plan unveiled this week “the Trump loophole,” according to the official. Trump’s proposal to lower the business tax rate to 15 percent would apply to all business income, including income that individuals earn from partnerships, limited liability companies and other “pass-throughs.”

Under Trump’s plan, those people would pay 15 percent. More than two-thirds of such income goes to the top 1 percent of tax filers, according to the Center for Budget and Policy Priorities.

Trump’s proposed top individual income tax rate is 33 percent.

Trump sent mixed signals Thursday about how committed he is to the pass-through provision. He said on CNBC his proposed business tax cut is an “unbelievable reduction” and that, in addition to the middle class benefiting from his plan, “a lot of the rich are benefiting because of the fact that I’ve really reduced taxes for business.”

Yet when asked about pass-throughs, Trump said, “We may end many of the loopholes that are currently being used.” Asked if it’s fair to say he wouldn’t allow the tax-lowering strategy, he said, “We are looking at that very strongly” and will release more details within two weeks.


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