Posted on 10/02/2018 8:57:46 AM PDT by Kaslin
I have spent some three decades railing against faulty budgetary scoring of tax bills, but the latest charade from the Congressional Budget Office and Joint Tax Committee takes the cake. The story of fiscal phony math is so indefensible when it comes to the Trump tax cut that you may not believe it could be true. Alas, it is.
The story starts with the CBO forecast in 2017 that over the next decade the national debt will double to 150 percent of GDP in about 20 years. Those are debt numbers that don't have a happy ending – just ask the citizens of Puerto Rico, Detroit and Greece.
This pessimistic forecast was based on a CBO prediction before President Barack Obama left office that economic growth would average over 20 years between 1.7 percent and 1.8 percent. Growth that low doesn't come close to generating the tax revenues to keep pace with shoot-the-moon federal spending trends.
But President Donald Trump's economic program was always predicated on getting pedal-to-the-metal growth of 3 percent to 4 percent each year. (Trump actually wanted 5 percent growth, but even Larry Kudlow and I thought that was too high to aim for. We might have been too unambitious.)
Economist Larry Summers of the Clinton and Obama administrations and many others on the left assured America that 2 percent was the best we could possibly achieve because America was suffering from a slow-growth paralysis he called "secular stagnation." They believed that since Obama averaged less than 2 percent growth over eight years (and 1.6 percent in his last year in office), it would be inconceivable for a blowhard like Trump to get us to anywhere near 3 percent.
But growth has rocketed to above 4 percent over the last two quarters and it's a brand-new ball game. Just since the tax cut passed some nine months ago, the CBO has increased its estimate of economic output by a gargantuan $6.1 trillion over the 10-year window of 2018 to 2027.
Because the federal government soaks up about 18 percent of the economy in taxes, this unexpected surge in prosperity will generate roughly $1.1 trillion more revenue for the federal government. The states and cities will also pick up about $500 billion more. Amazing.
Now here's where things start to get interesting. More growth means more revenue to the government, which means lower deficits in the future, right? Not according to the CBO. It actually now says the Trump tax cut, which was originally estimated to cost $1.5 trillion by the Joint Tax Committee, is this year suddenly inflated to about $1.9 trillion.
Here is how Politico explained the $400 billion rise in the deficits caused by the tax bill:
"CBO found the economy was stronger last year than previously estimated, and that puts a higher price tag on the tax cuts because more people would otherwise be paying higher rates this year. On top of that, CBO now believes top earners will get less of the income pie in the coming years, which means less revenue coming into the government."
This is the most convoluted logic in modern times. Thanks to the tax cut and other Trump policies, growth is $6 trillion higher. And yet because tax rates are lower, CBO says the feds will get less of that extra money in revenues.
CBO is genetically incapable of giving Trump the credit for the booming economy. In fact, he's penalized for it. Any sane person would say the deficit is going to be somewhere near $1 trillion smaller as the economy booms. Not $400 billion larger.
Even more remarkable is that CBO says the rich will get a smaller share of the economic pie over the next decade. Wait a minute. I thought the Democrats said this was a tax cut for millionaires and billionaires. Guess not.
Incidentally, this exact forecasting error happened in the Obama years – except in reverse. Because the growth rate was much lower under Obama than expected, the GDP was $2 trillion lower over Obama's two terms. It turns out the "stimulus" package failed to stimulate.
Trump's tax cut is only 9 months old so it is too early to say it is paying for itself. But already well over half the projected cost has evaporated because of higher growth. If we stay on this 3 to 4 percent path for another couple of years, the flood of added revenues will mean smaller deficits and much smaller debt levels relative to GDP.
What makes this all the more remarkable is that most Democrats are running for Congress this year promising to repeal or rollback the Trump tax cut, even though it has helped get us to 4 percent growth in a mere 18 months. They are sticking to their script that the tax cut will not work even though we can all see that it is working.
I told you that you wouldn't believe this.
Congress absolutely refuses to live within it’s means.
STILL WINNING!
The Laffer curve holds true about aggregate tax income rising in the presence of tax cuts. It is the spending side of the equation that is going to get us.
The Keynesian train rolls on. Low taxes with massive Government spending. Ya can’t cut debt doing that.
And he can get it, if only he can prevent the Fed from raising interest rates every quarter.
For years now I’ve been pointing out that more spendthrift Republicans are able to go along with their conservative bretherin when they are in opposition to a Democrat POTUS but when a Republican is in the White House they soon find their oats and start spending freely, often joining forces with the ever eager to spend Democrats (who know the Republican base will blame a Republican President for out of control spending).
Because of the never Trump phenomenon it took nearly a full year before they realized they no longer had a partisan reason to oppose spending and so the transition that took only a few weeks under W (when the so-called moderates realized that they held the cards, resulting in no vetoes till after the Republicans had lost Congress) was thankfully delayed.
Forget it, he’s on a roll.
“A Trillion-Dollar Blunder”
Obama was a multi-trillion dollar blunder.
The CBO never gets numbers right. By their own policies, they can’t do real investigation and calculations. They have to abide by whatever algorithms given to them by the person making the request.
So if I liberal asks the CBO to analyze a tax policy, it’ll use a static tax perspective like Dims think. If a libertarian/fiscal conservative asks the CBO to analyze the same tax policy, it’ll use a dynamic model (respecting the Laffer curve) because that’s how it’ll be asked to do it.
That’s why in the pre-lude to Obamacare, the CBO would one day say it’s horrible then the next day say it’s awesome. It always depends on who makes the request of the CBO and how the calculations are asked to be done.
“CBO found the economy was stronger last year than previously estimated, and that puts a higher price tag on the tax cuts because more people would otherwise be paying higher rates this year.”
That really is incredible! The tax cuts “cost” the government more money than it would have gotten if they kept taxes high but the growth magically appeared anyway??
By this logic college costs much more than you think, because you give up 4 years of income you would have made if you got the same higher-earning job without going to college.
No.
You see Keynes postulated that in good times spending should be decreased. His biggest failure as an economist was not realizing that all politicians etc would hear from him is “spend”. They loved his ideas because they rubber stamped more spending. But they were simply bound to never apply the flip side.
Even when Nixon infamously said we’re all Keynesians how the actual expression of Keynes’ ideas had shifted away from him towards what I call Keystone Keynesianism (think Keystone Cops for the reference).
Keystone Keynesians see bad times as the demand for more spending and good times as opportunities to spend more. They cease from just pump priming to graduate to habitual economic whacking off and distort the economy and government in a way not unlike how a sex freak distorts pleasure.
The loons in D.C. aren’t really Keynesians. Keynesians would be an improvement. They’re worse than Keynesians.
Keynes’ failure to understand people in power invalidates his ideas because economics is ultimately about people, about philosophy.
As I sometimes say, whatever you say against him, Smith based his ideas on how people actually act and what makes them likely to prosper on their own, and that’s why he was largely correct (even his “free trade” was mercantilist, one that was to benefit the nation, not just free trade for free trade’s sake) where so many modern economists want to propound on rational economies, political economies, economies that make sense ... and that’s why they fail.
“Trump’s tax cut is only 9 months old so it is too early to say it is paying for itself. But already well over half the projected cost has evaporated because of higher growth. If we stay on this 3 to 4 percent path for another couple of years, the flood of added revenues will mean smaller deficits and much smaller debt levels relative to GDP.”
I don’t care how much someone likes or dislikes Trump as a person, or how much they agree or disagree with his cabinet picks, judicial picks, etc. NO ONE can seriously dispute that this businessman extraordinaire understands how to get the economy moving - because he has already proven that he’s better at it than any President in living memory.
True. The debt will always be with us. Even when revenues rise because of increased economic activity, Congress will match spending to consume it. Those increased revenues will never be used to spend down the debt. There is no votes to be purchased there.
Notice how burgeoning tariff revenue IS NOT EVEN MENTIONED.
Lowering taxes(rates) actually HELPS to cut debt due to increased revenue but you are intellectually incapable of grasping that simple concept for some reason.
You keep expecting a different result from repeating the same things. This is Reagan 2.0. Massive .gov spending with lower taxes. Without reducing spending, we will ‘enjoy’ more deficits.
Exactly what I said would happen.
I love it when a plan comes together.
I know, I've repeated that many times. Even Keynes wanted a balanced budget, with outsets for bad times. We don't even have that these days.
p
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