Tuesday, April 25, 2017

Deficits Are Evil - Except When They're Not

In her previous post, Margaret Steinfels discussed the changing meaning of the term "conservative".  Following along those lines, one of the meanings of the word has been the fiscal sense.  That is, conservatives were those who believed in a balanced budget, and having a plan to pay for the things you want to do and have to do.  Turns out the Trump White House has a fiscal plan: http://www.vox.com/policy-and-politics/2017/4/25/15383806/trump-white-house-tax-plan-budget-math.  But in no way would it be called conservative in the traditional sense: 
"On Wednesday, President Trump will unveil a new set of principles for what he calls “massive” tax cuts for businesses and individuals — a plan bigger “than any tax cut ever.”
Those massive cuts will come with a massive problem for Trump’s economic team: how to pay for them. The White House doesn’t appear to have settled on a means of making up the trillions of dollars in lost federal revenue that economists predict will accompany Trump-size cuts. But administration officials are signaling they may be leaning away from hard choices to finance the cuts, and toward highly optimistic assumptions about economic growth"
"....On Monday, Trump signaled that cutting the corporate tax rate from 35 percent to 15 percent is his top priority, according to the Wall Street Journal — a move that by itself could cost the government $1.9 trillion."
"...he doesn’t appear inclined to ax popular tax breaks, such as those for homeowners or real estate developers. His budget blueprint cuts domestic spending, but only to fund increases in military and homeland security spending. Without any of those options at his disposal, his only hope to avoid adding to the deficit is a near doubling of economic growth."
His plan for the budget appears to be the poker player's strategy of "betting on the come". The new term in government for it is "dynamic scoring".  Doubling economic growth is optimistic by any standards.  What could possibly go wrong?
Remember when the Republicans were moaning about the deficit under Obama?  Hopefully they will hold Trump's feet to the fire.  The good news is that his plans are unlikely to get the approval of Congress.


  1. Deficits got conservative during the era of Ronald Reagan, as these charts show, especially the third one:


    Reagan did it by slashing taxes (ditto Trump), raising "defense" spending (ditto Trump) and slashing spending with a magic asterisk invented by David Stockman. Trump has promised to reduce spending without resort to an asterisk (so did Reagan) and submitted a budget suggestion that does that(so did Reagan). But when all is said and done, if he does the first two, there will have to be either a magic asterisk or a magic tweet,

    This would be a sin, and widely noted as such, if a Democrat did it. It will be considered dynamic accounting, and Arthur Laffer will be unleashed again when a Republican does it. Trying to make sense of that is like it will be to try to make sense of the Wall Street Journal's editorial page during the upcoming long night of national innumeracy.

  2. Since my earlier outburst of enthusiasm (no!), the notes toward a Trump tax plan have been put out by former Goldman Sachs apparatchik Steve Mnuchin (how about that swamp draining?). From the rather thin notes, the plan has been called the biggest tax cut Mnuchin has seen, the biggest and best Mr. Trump has ever seen and the greatest creative act since Genesis. When we see the whole plan, it will also be the biggest budget deficit ever seen because, we are told, "the cuts will pay for themselves."

    It is very hard to take this fake arithmetic seriously even though we may have to live with something like it. Our only hope is that while all the Rs cackle like deficit hawks, some of them really are. But are they enough to withstand such greatness?

  3. Tom, I think you are right that some of the Rs really are deficit hawks. The Tea Party faction are, and many of the moderates. The alt-right are the unknowns. It is worrisome because Steve Bannon is their avatar. I have said he is an anarchist (and I think that describes many of the alt-right). He wants to "dismantle the administrative state". One way to effectively do that is to starve it to death. Just...don't make any arrangements to pay for it. Those of us who have had kids in college are familiar with the FAFSA application. When you get a response it is supposed to tell you how much you can afford based on income, how much government aid, if any, you can expect, and if your student qualifies for subsidized loans. but there is a fourth category, "unmet needs". I think there is going to be a lot of "unmet need" with the budget. Don't go through the hassle of getting rid of programs or offices, just don't deal with paying for them. Because got to have our tax cuts.