The White House released its budget proposal for the 2018 fiscal
year earlier this week, and it includes massive cuts to domestic
programs and increased defense spending.
The administration touted its projection that the budget would be
on a path to balance within 10 years. But that assumption relies
on a few basic errors that economists say undermine the entire
The budget, economists say, “double counts” how proposed tax cuts
would affect its bottom line.
The Trump administration has touted its tax plan as
revenue-neutral because of the economic growth it says would
result from more money in Americans’ pockets. Put another way,
the administration said any deficit increase from lost revenue
would be made up by higher GDP growth.
Trump’s budget, however, would also supposedly balance in 10
years — even though the spending in the proposal is greater than
the tax receipts it assumes. To account for this, the Trump
administration said the economic growth from tax cuts would make
up the difference.
By that logic, the economic growth from tax cuts would mean the
tax plan would both have no effect on the deficit — and make so
much money that the $2 trillion difference between spending and
receipts would disappear.
Confused? A wide array of economists from across the political
spectrum were, too.
This mistake drew pushback from former Treasury Secretary Larry
Summers and Keith Hennessey, who was the director of President
George W. Bush’s National Economic Council.
“Either the $2 trillion of added cash inflows resulting from
faster economic growth can pay for more government spending and
reduce the need for government to borrow, or that $2 trillion can
replace the cash lost to the government from cutting taxes and
reduce the size of painful tax increases you need to propose,”
wrote in a blog post on Tuesday. “Arithmetic forces you to
choose one goal or the other.”
Hennessey added, “You can’t have it both ways, and $2 trillion is
a big hole to fill.”
Mick Mulvaney, the director of the Office of Management and
Budget, said the double-counting was done “on purpose.”
“Regarding the double-counting,” Mulvaney said, “here’s one of
the things I think that a lot of folks have overlooked — and we
did it on purpose because it’s sort of hard to count this, and
you don’t want to make too many assumptions — you have to make
assumptions about a budget. You’re talking about a document that
will look 10 years into the future. So it’s natural for
administrations from either party to make some assumptions.”
The estate tax
Another discrepancy is in the Trump administration’s call for an
elimination of the estate tax.
Nobel Memorial Prize laureates and the New York Times columnist
Paul Krugman have noted that Trump’s budget proposal and tax plan
both call for the elimination of the estate tax, which is levied
on the estates of people with more than $5.45 million in assets
the 2016 tax year).
The budget proposal, however, contains an assumption that
receipts from the estate and gift taxes will increase to $43
billion in 2027 from $21 billion now. About $2 billion of the $20
billion collected in 2015 was from gift taxes — the rest was from
the estate tax.
Mulvaney said the tax plan wasn’t fully incorporated in the
budget proposal because it was a guideline of principles, but one
of the most explicit parts of that plan was repealing the estate
“It’s the least honest and competent budget that’s been put out
in 40 years,” Summers said.