The Phaserl


Trump’s Budget: All Hat, No Cattle

by David Stockman, DailyReckoning:

Who said Donald Trump is a political amateur? Back in the day I was always miffed when the White House political staff wanted to put some “distance” between President Reagan and some of our more controversial budget cuts.

But with his first overseas trip as President, it looks like the Donald got the memo and put 6,000 miles between himself and the entire budget enchilada. That’s just as well, of course, because the Trump budget is DBA (dead before arrival) anyway.

There’s a lot to unpack here.

Trump’s budget assumes strict revenue neutrality on tax reform. It wouldn’t add to the deficit, that is — and that’s entirely commendable given the $20 trillion of debt America already has. And that’s before the $30-$35 trillion already built in over the next decade under current law.

By 2027 the national debt would be about 140% of GDP before one dime of the Trump tax reforms or other priorities are added to the equation. So the “payfor” approach to tax cuts rather than assuming that tax cuts will pay for themselves is a definite step forward.

At the same time, this disciplined approach to tax cutting is the real newsflash that Wall Street dip buyers seem to be ignoring entirely. Until now the Trump approach has implied at least short-run deficit financing for the tax cutting plan, which had Wall Street tickled pink because free fiscal lunches are what the gamblers down there mean by “stimulus.”

To be sure, this sudden lapse to pre-Reagan GOP orthodoxy on taxes is a case of all hat and no cattle. It’s short on details and just states that big rate cuts will be accompanied by a commensurate broadening of the tax base and elimination of “tax expenditures.”

But the 15% tax rate for corporations and some other businesses would cost $4.2 trillion over the next decade. Less than 10% of the Trump business tax cut can actually be financed under the revenue neutral guidelines of the Donald’s own budget.

Under the Trump budget guideline of revenue neutrality, there are probably not enough politically achievable loophole closers to fund even a 30% corporate and business tax rate. And even that would leave no room at all for personal tax cuts such as Trump’s proposed doubling of the standard deduction and the collapse of the current seven tax brackets into three brackets at 10%, 25% and 35%.

That’s all to the good relative to the nation’s headlong drift toward fiscal bankruptcy. But when fully understood, it will come as a complete shock to the Wall Street partiers who believe they are entitled to a giant Trump Tax Stimulus — even if the ultimate cost is shuffled onto unborn taxpayers.

That being said, the overwhelming share of the Trump cuts are long-overdue and well justified. But they don’t have a snowball’s chance in the hot place of being embraced on Capitol Hill by more than a small group from the House Freedom Caucus.

Even then, the proposed cuts amount to just 6% of the $52.5 trillion Federal spending baseline over the next decade. So despite all the initial arm-waving by the Dems, K-Street lobbies and their media megaphones, the Trump budget cut is not all that draconian.

The problem, of course, is the programs Trump won’t touch.

That is, most of the above massive spending baseline — about $40 trillion — consists of programs the Donald and/or the GOP mainstream promised not to touch or to actually increase. These include defense, Social Security, Medicare, net interest, veterans, border control/walls, law enforcement and other priorities.

Consequently, the big Trump budget cuts come crashing down on a tiny corner of the budget. And even there the resistance is thick on the GOP side, while the screams of unfairness from the beltway constituencies and media will be deafening.

Consider one that already has the lib-labs (liberals and labor) howling with outrage. I’m talking about the $72 billion in cuts to the social security disability insurance (SSDI) program over the next decade.

They are screaming that this betrays Trump’s campaign pledge not to touch Social Security and that it hammers people that can’t work and have no other means of support.


What they aren’t telling you is that under current law the SSDI program would cost $1.8 trillion over the next decade, and the proposed savings amount to just 4% of that astounding total.

Moreover, the SSDI program has been growing like wildfire owing to drastic liberalization of eligibility during recent decades. The caseload has soared owing to alleged “bad backs” and psychiatric conditions that shouldn’t be allowed in the first place. These have caused total outlays in inflation-adjusted terms to more than triple during the last 25 years.

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