Trump’s budget balls-up

President Trump’s economic team have release their plans for the federal budget over the next ten years.  It is a combination of wildly optimistic economic growth forecasts, vicious cutbacks in public services and environmental measures; and significant cuts in corporate taxes and personal taxes for the rich.

But what is exercising mainstream economists are the schoolboy errors in the budget logic.  The budget assumes a $2trn increase in revenue coming from fast economic growth to balance the budget by 2027.  But at the same time this economic growth is supposed to pay for $2trn in tax cuts so that there is no loss in revenue.  But if you cut revenue with tax cuts of $2trn, you cannot restore the revenue by growth AND also balance the budget with another $2trn by 2027.  That is double-counting.  One ludicrous part of this calculation is that the budget aims to cut $300bn in estate taxes over the next decade and yet forecasts a rise in estate tax revenue from faster economic growth.  So will estate tax revenue rise or fall? – it cannot be both!

This is an interesting quirk for mainstream economists to mull over, but what those who look to the interests of working people should note in the budget are the huge hits to federal public services (while increasing military and national security spending).  In the so-called ‘Taxpayer First Budget’, the plan is to strip down expenditure on all sorts of civil services by $3.6trn over ten years.  Funding for Medicaid, the health-care program for low-income Americans will be cut by $800bn.  The federal nutrition program (food stamps) that benefits 44m of the poorest Americans (yes, it is that many on food stamps) would be cut by nearly 30%.  The budget director said that too many of these programs “spend other people’s money” and that we should have “compassion for folks who are paying for it”.  So much for the concept of ‘society’.

At the same time, corporate tax rates will be slashed from 35% to 15%; foreign aid grants (outside of military spending) will be eliminated and $1.6bn will be allocated for building the wall on the Mexican border.  Consumer finance protection measures will be removed and financial regulations relaxed.

As for personal taxation, the top income tax rate is to be cut to 33 percent from 39.6 percent.  There will be a cut in taxes on capital gains, 70 percent of which flow to the top 1 percent.  The  estate tax will be eliminated.  This applies to a tiny number of people, couples that have estates bigger than $10.8 million.   The 3.8 percent surtax on high earners’ investment income that has been used to subsidize health care for poorer Americans will be stopped.  And the alternative minimum tax, which currently limits deductions for high earners, will also go.  And there will be lower taxes on cash flow and income that passes from small businesses to their owners, which also primarily benefits wealthier America

The nonpartisan Tax Policy Center, a joint project of the Urban Institute and Brookings Institution, found “high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income… Three-quarters of the tax cuts would benefit the top 1 percent of taxpayers,” if the plan were put into effect this year, it said. The highest-income households — the top 0.1 percent — would get “an average tax cut of about $1.3 million, 16.9 percent of after-tax income.” Those in the middle fifth of incomes would get a tax cut of almost $260, or 0.5 percent, while the poorest would get about $50. That split would worsen down the road, the Tax Policy Center says: “In 2025 the top 1 percent of households would receive nearly 100 percent of the total tax reduction.”  Even the conservative-leaning Tax Foundation concluded that those in the top 1 percent of the income scale would save at least 10 times as much, or 5.3 percent. That’s nearly $40,000 extra for those at the top, compared to $67 for those smack dab in the middle of the income scale.

But leaving aside the inequities of the Trump administration’s budget plan and its basic accounting errors, the biggest flaw is in its forecast of average 3% real GDP growth in the US economy over the next ten years.  This forecast is essential in justifying the ‘dynamic scoring’ of the budget revenue projections.  But it is fairyland.  Jason Furman at the Petersen Institute points out that the divergence between this forecast (3%) and the consensus forecast of mainstream economists (2%) is the widest in half a century.  And 1% point of growth each year makes a huge difference.

Furman ran 10m simulations (yes 10m) of the likely possibility that 3% growth could be achieved as a random possibility from the median forecast of economic growth of 1.8% a year.  The odds of getting 3% were 4%.

The real problem is that across the advanced capitalist economies, productivity growth has plummeted in the last ten years of the Long Depression…..

while employment and population growth has slowed.

Thus, the potential growth rates of the top capitalist economies have dropped away. The Trump target of 3% (it used to be 4%) is just not going to happen.  And all this assumes that there is no new major economic slump in capitalist production, employment and investment in the next ten years.  If the history of capitalist economic cycles are to be relied upon, then that is almost ruled out, even if my own forecast of a new slump by 2018 turns out to be wrong.

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12 Responses to “Trump’s budget balls-up”

  1. Mindy Says:

    Half of people in USA with less than 35 Years old are not anglo-germanic. Half of people in USA with less than 35 Yeats already are latins, blacks and asians
    Fact is: government doesnt care about these people, who usualy are the country’s poor

  2. Mindy Says:

    Half of the people in Latin America, whites, live like they were in Italy, and the other half, mixed and black, live like they were in India.
    Half of the people in USA, whites, live like they were in Switzerland, and the other half, mixed and black, live like they were in Mexico.

  3. Charles A. Says:

    “who usualy are the country’s poor” –Three of every five people in poverty in the U.S. are non-HIspanic white (and not Hispanic). [ https://www.census.gov/prod/2013pubs/acsbr11-17.pdf ]. That is a basis for a class movement. But it seems arithmetic is a challenge for more than Trump’s budget dwarfs.

  4. Henry Says:

    “That is a basis for a class movement. But it seems arithmetic is a challenge for more than Trump’s budget dwarfs.”

    But there is a very real phenomena replicated in many parts of the world, where ethnic minorities are disproportionately represented among the underclass. Actually Mindy was quoting official stats, whereas with the unreported the situation is even more starkly balanced than the official stats show.

    Charles can bury his head in the sand all he likes but real phenomena need to be dealt with concretely, especially as so much politics flows from it.

    But if we take Charles at his word I guess we are saying the 2 out of 3 whites represent the enemy?

    • Charles A. Says:

      The rate of poverty is higher among Blacks and Latinos in the U.S. That fact goes alongside the fact that a majority of people in poverty in the U.S. are non-Hispanic white. Try to grasp both.

      • Henry Says:

        I have grasped both but you are totally missing the point.

        Sartesian, I am saying that in many many societies including Europe, japan, the USA just to name three, ethnic minorities have been shipped, induced, forced in to undertake menial tasks, many in statistically unreported sweatshops. There are plenty of articles on this and a number of UN reports.

        Frankly if socialists are not aware of this situation I wonder what kind of socialists they are.

      • sartesian Says:

        You also said this, Henry: ” Actually Mindy was quoting official stats, whereas with the unreported the situation is even more starkly balanced than the official stats show.”

        So that’s what I asked for: the official stats; the sources for the “official states.” I don’t believe Mindy has ever sourced the claims made.

        If you have, please let me know the source.

      • Henry Says:

        So you are telling me you can find no stats anywhere which point to the disproportionate social status of ethnic minorities and how they are typically used as a pool of unskilled labour or a reserve army. Seriously?

        “The typical black household now has just 6% of the wealth of the typical white household; the typical Latino household has just 8%, according to a recent study called The Racial Wealth Gap: Why Policy Matters, by Demos, a public policy organization promoting democracy and equality, and the Institute on Assets and Social Policy.

        In absolute terms, the median white household had $111,146 in wealth holdings in 2011, compared to $7,113 for the median black household and $8,348 for the median Latino household.”

      • sartesian Says:

        No, Henry; I know where and how to find stats describing the difference in wealth holdings– mostly the value of homes– in the US; what I can’t find are stats that support this:

        “Half of the people in Latin America, whites, live like they were in Italy, and the other half, mixed and black, live like they were in India.
        Half of the people in USA, whites, live like they were in Switzerland, and the other half, mixed and black, live like they were in Mexico.”

        Can you? Seriously?

      • Henry Says:

        “Can you? Seriously?”

        No because it isn’t a stat based polemic. It is a polemic that if you are not the pedant of the year you can understand the spirit of it, or at least acknowledge it hits to some fundamental cleavages within politics today.

        Actually Mindy hits concrete reality with that statement more than any shipping container fact you may furnish us with!

        Does that mean I think our politics should follow an identity route, no!

      • sartesian Says:

        Good to know, Henry, that when you say someone’s only quoting official statistics, you don’t mean they are actually quoting official statistics.

        If that sounds to others a lot like “alternative facts” or “fake news,” they’re just being pedantic.

    • sartesian Says:

      Really? What official stats is Mindy quoting? Can we have a source please. I wasn’t able to find anything in the US Census Bureau stats that support that bollocks– that half the people in the US, the whites– who by the way are approximately 2/3 of the population live like the Swiss (and BTW, where are the stats for the Swiss coming from?), while the “other half” all live like they are in Mexico, and are all Hispanic, black, and Asian.

      Poverty rates, which are not exactly the same thing as living like the Swiss, or like those in Mexico, indicate that the general rate in the US is about 14%; with 24.1% of African-Americans living at or below 100% of the poverty line; 21.4% of Hispanic origin living at or below; 11.4% of Asians, at or below, and 9.1% of whites at or below.

      That people of color face significantly higher rates poverty in the US is not now nor has it ever been in dispute. But what Mindy offers, and Henry endorses, is just baloney.

      As for this “But there is a very real phenomena replicated in many parts of the world, where ethnic minorities are disproportionately represented among the underclass.”

      Exactly what do you mean, Henry? Ethnic minorities in China have higher rates of poverty than those of Han lineage? Or are you attempting to say that higher rates of poverty prevail in “less developed” countries? Again, not very shocking, is it? Never has been in dispute, has it?

      So once again, sources please?

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