We have a simple thesis that is being reinforced by each new appointment or policy utterance of the nascent Trump Administration. Namely, there's going to be a fiscal bloodbath in 2017, not a giant Trump Stimulus. And it is in the vasty deep of the ultimate beltway swampland----the Pentagon----where the Trump Reflation fantasy will sink into oblivion.
Whatever passes for a transition process at Trump Tower has more or less harpooned the 45th President-elect by populating the national security posts with generals, hawks and Iran haters. For reasons detailed below, this fatal step easily adds $100 billion per year to defense spending, meaning that the total national security complex including atomic weapons and international security programs would amount to $8.5 trillion over the next decade.
In terms of pure fiscal math that later figure is a big number. But it gets even far bigger when you add in a decade's worth of debt service ($7 trillion) and Trump's other priorities such as enhanced medical care and benefits for Veterans ($2.3 trillion), border control, law enforcement, homeland security and the Wall ($1 trillion) and, presumably, the existing (i.e. pre-Trump) spending for highways, airports, transit and other infrastructure ($1.2 trillion).
In fact, the implicit War Hawk defense build-up plus the above Trumpian domestic priorities----including interest on the debt that he finally conceded he would pay without question----add up to about $20 trillion over the decade. That happens to be 94% of the entire $21.3 trillion of individual income tax collections---including all the Obamacare taxes----that CBO projects under current law during that period.
The problem, of course, is that this ignores upwards of $30 trillion of built-in entitlement spending---most of which Trump has ruled off-limits to cuts---- over the next 10 years; the rest of domestic government from the National Cancer Institute to the Forest Service and Patent Office ($5 trillion); and the $6 trillion of tax cuts Trump has proposed and the $1 trillion Trump infrastructure program. In short, give the generals and the hawks their war budgets and the Donald his domestic priorities and there is no headroom left for any fiscal stimulus program at all.
Actually, the full fiscal picture is much worse. If you ignore CBO's recession-free 206 months of Rosy Scenario (2009-2026) and use an economic forecast identical to the average of the last 10-years, there is $15 trillion of new deficits built-in under current tax and spending policy through 2026. That comes on top of the $20 trillion public debt we already have---half of which has been incurred since Obama took the oath in January 2009.
So attempting to shoe-horn trillions of "stimulus" into an already busted budget which labors under $35 trillion of public debt-----that is, debt already incurred or committed by law-----is a recipe for legislative and political conflagration under any circumstance.
Read the rest here.
David Stockman is the former Director of the Office of Management and Budget during part of the Reagan Administration, from 1981 to 1985. He is the author of The Great Deformation: The Corruption of Capitalism in America and The Triumph of Politics: Why the Reagan Revolution Failed.