his article was published by The McAlvany Intelligence Advisor on Wednesday, May 24, 2017:
Now that the White House has released the budget for fiscal year 2018, the quote from Otto von Bismarck becomes operative: “Laws are like sausages; it is better not to see them being made.” But that only becomes operative after the election, about which H. L. Mencken said, “Every election is a sort of advance auction sale of stolen goods.” And when those stolen goods exceed $4 trillion, everyone has a distinct interest in getting, keeping and expanding his share.
When Trump’s “blueprint” was rolled out in March, it provided the bare bones of what he hoped it might accomplish:
Providing for one of the largest increases in defense spending without increasing the debt;
Increasing the budget for immigration enforcement;
Providing the resources for building the wall;
Increasing funding for fighting violent crime; and
“putting America first by keeping more of America’s hard-earned tax dollars here at home.”
Between then and now, the budget has been changed so much that it is scarcely recognizable. It didn’t disappoint skeptics, either. Growth resulting from lower taxes will drive the economy to levels that will balance the budget – by 2027 – much of it based on magic, hope, pixie dust, and gimmicks.
There’s plenty in it to offend everyone, and more than enough to keep the bill, in its present form, from ever seeing the light of day. Senate Majority Leader Mitch McConnell has already said that it doesn’t “reflect our positions,” thus scuttling it before it even has a chance to be debated.
Which is probably a good thing since so much of what’s proposed is based on unrealistic assumptions and accounting fraud.
First, the “magic.” Built into the budget are what the White House calls “the effects of economic feedback” along with Treasury Secretary Steven Mnuchin’s “dynamic scoring” that will make it work. These are not terms with which economists are familiar, but serve instead to persuade the gullible that the combination of cuts to government spending (some agencies would suffer significant cuts to their budgets under the proposal), cuts in tax rates, and reductions in government regulations will result in a 50 percent increase in the country’s gross domestic product (GDP) by 2021. Once achieved, that 3 percent annual GDP growth (it’s currently just under 2 percent) will continue for the foreseeable future, according to the proposal.
That’s just not likely to happen. “Hope” is not a strategy, and that’s what it is going to take to make this proposal work. Economists are uniformly skeptical. The highest rate of predicted long-term GDP growth comes from the Professional Forecasters Survey at 2.1 percent. Next is that from the Economist Intelligence Unit, at 2.0 percent, followed by the Congressional Budget Office at 1.9 percent. The IMF projects long term U.S. economic growth at just 1.6 percent.
For this year, the Federal Reserve predicts the economy will grow at 2.1 percent, while the Blue Chip Survey of top U.S. economists is slightly more optimistic at 2.3 percent. Another survey of leading business forecasters found that only one out of six even thinks the U.S. economy can achieve 3 percent growth this year.
The Urban-Brookings Tax Policy Center (TPC), the Washington establishment’s “non-partisan” voice on such matters, has estimated that Trump’s plan would add $7.2 trillion to the national debt, bringing the national debt, assuming he stays in office through 2020, perilously close to $30 trillion. The TPC calculated that even if the Laffer Curve does work, it will result in only some $2 trillion in fresh revenues for the government, far short of expectations.
The budget is filled, predictably, with various accounting gimmicks, such as measuring the present proposal against Obama’s last budget, and claiming that any reduction from his increase counts as a savings. If that’s confusing, Bloomberg straightens things out:
The budget also makes use of several other classic accounting gimmicks. It assumes that the wars in Afghanistan and the Middle East will cause future Congresses to allocate $593 billion in extra war spending that won’t be needed, and then claims to save that amount by not spending it.
Got that? Extra spending on wars that Congress is expected to spend in the future won’t be needed (presumably because Trump will bring peace to the Middle East?), and so that is called “savings.” Only in Washington…
The “pixie dust” is next. The budget proposal assumes that workers will become more productive as a result of capital inflows from companies currently stashing cash abroad waiting for a more favorable climate to invest here. It also assumes that reluctant Democrats will join middle-of-the-road Republicans in supporting a budget that proposes slashing government spending on student loans, the SNAP food stamp program, Medicaid, foreign aid, and tighter eligibility for welfare benefits, especially for illegals.
This is dreamland.
There is one more element not mentioned to get this proposal off the ground. The CRFB explains:
The reality is that even getting part of the way to 3 percent sustained economic growth … will likely require an aggressive and bold combination of pro-growth policies to boost productivity, labor, and capital, along with a significant amount of luck.
Little is certain when the pigs gather around the trough filled to the brim with Mencken’s stolen goods. But one thing is: the final product, after all the sausage-making is completed, will be vastly different. It will likely have a little for everyone, including the taxpayer who ultimately will foot the bill one way or another.
The Committee for a Responsible Federal Budget: How Fast Can America Grow?
MarketWatch: Trump budget forecasts rosy economic growth