Donald Trump's tax proposals could spur more economic growth and more jobs ... for awhile.
But by 2024, that positive effect turns negative. His plan would slow growth created relative to what's expected under today's policies.
Hillary Clinton's plan would do the opposite -- having a somewhat negative effect on growth in the first several years, and a more positive one after that.
That's according to a new macroeconomic analysis by the University of Pennsylvania's Wharton School in collaboration with the Tax Policy Center.
"In the short run, Trump's tax plan reduces taxes on business and higher income Americans, boosting investment and work, which results in more economic growth. However, in the long run, the Trump tax plan increases federal debt more than current policy, resulting in less economic growth," Penn Wharton noted in its report.
Here's why: Even accounting for the positive macroeconomic effects, the Trump tax cuts are estimated to reduce revenue by $7 trillion in the first decade alone. Absent offsetting measures, that means the United States would have to borrow a lot more money than it already does. That, in turn, means the U.S. government will be competing with the private sector to attract investors' dollars, and that will drive money away from a productive part of the economy.
"If the tax cut substantially increases government debt ... the debt competes with private capital for household savings and international capital flows," the Penn Wharton report said.
Its model estimates that Trump's plan could add an additional 1.1% in 2018 relative to current law. But by 2024 that positive effect is erased and by 2027 it could lower GDP by 0.78%. By 2037, it could produce 4.6% less GDP than expected.
There are ways that the long-run effects of the revenue loss created by Trump's plan would not be negative. But the changes needed to offset them might not be realistic.
For instance, Trump and his economic advisers have asserted that revenue losses under his tax plan could be offset in part through spending cuts. But he's ruled out touching Medicare and Social Security. To fully offset the negative effects of the debt created by his tax plan, Trump would have to cut non-Medicare, non-Social Security spending by 50%, said Kent Smetters, faculty director of the Penn Wharton Budget Model.
Or, Smetters noted, the amount of foreign investment in new U.S. debt would have to reach levels far above the historical average of 40%.
Trump camp rejects the analysis
The so-called "dynamic scoring" model used by Penn Wharton doesn't account for Trump's other economic proposals -- such as for trade, energy and regulation. Nor does it account for the economic effects of his spending plans, such as his proposal to boost infrastructure spending.
That's one reason why Trump's economic advisers essentially reject the findings.
"It only looks at taxes. It tortures its result [by extending the window over 25 years]. It makes a wrong assumption about how debt affects [interest] rates. And it ignores the role of growth in the process," said Trump adviser Peter Navarro, an economist at the University of California-Irvine.
The Trump camp wants outside experts to score Trump's economic plan as a whole. They believe his trade and energy policies will spur enough growth to offset any revenue loss in his tax plan. Outside experts are dubious, but haven't been able to model his spending and other plans together both because of a lack of policy specifics and a lack of adequate modeling tools to do so, they say.
What about Clinton's plan?
The analysis found that the effects of Clinton's tax plan would essentially be the reverse of Trump's.
Clinton's tax plan would raise taxes largely on high-income households but also businesses. As a result, "in the short run, [her plan] dampens investment and work, which results in less economic growth. However, in the long run, the Clinton tax plan reduces federal debt relative to current policy resulting in more economic growth," the Penn Wharton report noted.
Overall her tax plan raises more than $1 trillion -- all of it earmarked for her spending proposals -- so it's not expected to add to the debt in the long run
Her plan would produce 0.3% less GDP than currently projected for 2018 but that negative effect starts to turn positive by 2028, according to the UPenn/Wharton model. And by 2037, it would produce 0.7% more GDP than would be the case under today's policies.
Like the Trump camp, the Clinton campaign would have preferred an analysis of the economic effects of all her plans taken together.
"[B]ecause this analysis only takes into account the candidates' tax plans, it doesn't show the truly stark differences between their economic visions]," said senior policy advisor Jacob Leibenluft. "As other analyses have shown, Secretary Clinton's investments in areas like infrastructure, innovation and education will create good-paying jobs, whereas Donald Trump's harmful proposals on immigration and trade will result in a recession."
Correction: The original version of this article incorrectly stated that Clinton's plan is estimated to generate 4% more GDP in 2037.