Wednesday, May 24, 2017

Here is the Step-by-Step on the Huge Error in the Trump Budget

Former Treasury Secretary Larry Summers has already penned an op-ed pointing out the double-counting in Trump's budget.

He called it the biggest budget "accounting error in at least 40 years."

I am told that in a just recorded interview, Summers continued to pound on the Trump error---and he should, it's huge.

The best way to think about the error is this way.

As Summers puts it:
The administration asserts that it will propose revenue-neutral tax cuts, with the revenue neutrality coming in part because the tax cuts stimulate growth! This is an elementary double count. You cannot use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not cost revenue. At least not in a world of logic.

The Trump team prides itself on its business background. This error is akin to buying a company assuming that you can make investments that will raise profits, but then, in calculating the increased profits, counting the higher revenues while failing to account for the fact that the investments would actually cost some money to make. The revenue generated by the investments might exceed their cost (though the same is almost never true of tax cuts), but that does not change the fact that the investment has a cost that must be included in the accounting.
In other words, Summers is saying the initial tax cut will "cost" X and we don't know if it will result in an X increase in tax revenues because of growth, less than X or more than X but whatever it comes in at, from a government perspective it cost X, the original tax cut.

That said, I am not against tax cuts, but my expectation is that the tax cuts will be replaced with hidden tax increases and deficit spending--which means there will be no cut in government spending and the damage and misdirection in the economy will continue but in a more hidden manner. You will be robbed in a more sophisticated manner. The Trump budget despite the optimistic forecasts says as much when it plugs in 2018 government outlays at  $4.094 trillion, which is greater than projected 2017 outlays. If spending is going up, it is coming out of your hide one way or another despite the blaring "Tax Cut" headlines/

That's an even bigger scam than what Summers is pointing to.

The Summers' interview will be on "Wall Street Week" on Fox Business, Friday at 8:00 PM ET.


1 comment:

  1. which means there will be no cut in government spending

    This is the heart of the problem, whether the spending is paid for by taxation now or by new borrowing. Though, I suppose I slightly prefer the latter, since the fool who loans the government more money will get stiffed, while if it's paid for by taxation, I get stiffed.