The Finance 202: Trump administration gets real about cost of its tax plan

Tuesday , February 13, 2018 - 11:25 AM

Tory Newmyer

(c) 2018, The Washington Post.

President Donald Trump’s budget, first and foremost, is a messaging document. Take it from White House budget director Mick Mulvaney, who in a Monday briefing told reporters, “This is a messaging document.” But there is some truth in advertising. The administration’s spending blueprint finally acknowledges what every mainstream economist insisted last year over the Trump team’s objections: The $1.5 trillion tax cuts won’t pay for themselves.

The top lines help tell the story. The White House predicts stronger economic growth, kicking in sooner, than it did in the 2018 budget. At about 3 percent annually, that growth is far more robust than most economists expect - and with milder inflation than forecasters predict and even lower borrowing costs than the administration projected last year.

Yet where last year’s document projected a $16 billion budget surplus in a decade, the 2019 version sees the government running a $450 billion deficit in 2027. That’s a pretty stunning reversal.

And the White House seems to be conceding the GOP tax-cut package accounts for both the revved-up growth and the gusher of revenue draining federal coffers. The recent spending deal, which would even further exacerbate the deficit, wasn’t incorporated into the new budget.

Mulvaney still maintains that the tax cuts “generate additional saving, additional revenue to the Treasury than we’d have without it.” As Politico points out, he chalks up the lost revenue to “technical corrections, the fact that the budget assumes that the individual tax cuts set to expire in eight years will be extended and ‘how the Treasury scores, believe it or not, the Obamacare repeal portion of the tax bill.‘ “

The new budget “forecasts that tax revenue will plummet in the next few years and never recover to the levels forecast before the tax plan was enacted in December,” The Washington Post’s reported earlier. “It projects that tax receipts will be $314 billion lower in 2018 than it forecast last year and almost $400 billion lower in 2019. The White House even projects that tax receipts will be $200 billion lower in 2027 than forecast last year, even though it had promised that the plan would fully pay for itself by then.”

So much for the metaphysics of dynamic growth. The Trump team late last year argued the tax package would unleash so much economic activity that the Treasury wouldn’t notice a permanent, 40 percent reduction in the corporate rate (the real reduction turned out to be 14 percent). The contention didn’t survive the winter.

Another question is whether anyone cares. On a day when the White House projected the deficit next year will double what it anticipated last year, the 10-year Treasury yield touched a four-year high before retreating slightly. But the federal government’s borrowing costs remain historically low.

And if stock market investors are jittery that higher deficits will prompt price-crimping interest rate hikes, they didn’t show it on Monday. The Dow Jones industrial average climbed 410 points, or 1.7 percent, as both it and the S&P 500 notched their biggest two-day gains in percentage terms since June 2016.

Voters seem similarly unperturbed by the gathering deficit clouds. Back in 2013, the share of Americans naming deficit reduction as a top priority - 72 percent - was at a two-decade high, according to the Pew Research Center. Now, just 48 percent call it a leading concern. As my colleague Paul Kane noted over the weekend, that’s not enough to crack voters’ top 10 list.

Paul cites a recent Republican polling memo pointing out that by 59 to 18 percent, voters prefer to measure the economy by personal metrics - “income, wages and cost of living” - rather than general ones: “growth rate, inflation, interest rates.” That bodes well for Republicans who are likewise focused on juicing immediate-term results even as longer-term costs come into view.

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