Tuesday, April 25, 2017

Trump Is -- Gasp! -- Being Dishonest About the National Debt

by Neil H. Buchanan

It has always been clear that Republicans are situational deficit hawks.  They are perfectly happy to run up huge amounts of debt when their men occupy the White House, and even to leave spending for their wars off of the official accounts.  When a Democrat becomes president, however, suddenly those Republican opportunists claim to be terrified of debt.

It was not surprising, then, that Donald Trump ran on an especially aggressive version of debt obsession, claiming that there was a "magic number" of "24 trillion ... 23 ... 24," one of which he claimed is "the number at which we become a large-scale version of Greece."

The most obvious reaction at the time was to point out that Trump's promises regarding military spending and huuuuge tax cuts (those tax cuts alone adding roughly a trillion dollars per year to the debt) would make it impossible to pay down the national debt, which Trump also promised to do.  But as a candidate, he had fun.  Why would he start to pay attention to reality now?

Looking for something that he can call a success -- or even progress -- Trump is now back in the tax cut game, and he is as confused and duplicitous as ever.  Now, he promises a "massive" tax cut, and he surprised his own in-house advisors by claiming to have a plan of which they were completely unaware.

Although Trump's people released a shockingly cruel budget outline last month, those domestic spending cuts would provide nothing like the savings necessary even to come close to offsetting the scale of tax cuts and military spending increases that Trump apparently has in mind.

So where do we stand on the promise to eliminate the entirety of the national debt -- which, even if we tried to do it over ten years, would require running immediate budget surpluses every year on the  order of two trillion dollars (plus interest that accumulates in the meantime)?  That promise was, we have now learned, never serious.

Trump's budget director, Mick Mulvaney -- who was one of the most aggressive, mindlessly debt-obsessed members of the Tea Party when he was in Congress -- announced last week that Trump's promise was merely "hyperbole":
"It’s fairly safe to assume that was hyperbole.  I’m not going to be able to pay off $20 trillion worth of debt in four years. I’d be being dishonest with you if I said I could."
Let us leave aside the rather amazing admission on Mulvaney's part that Trump was being dishonest.  Let us even ignore his blithe explanation that they are not proposing cuts in "mandatory spending" (translation: Medicare and Social Security) "because the public’s not ready for it yet."  (Yet?)  So Trump was lying about protecting those programs, too.  Color me shocked.

It is also worth emphasizing that what Trump appears to be planning at this point will not even prevent us from hitting that magic number of 23 or 24 trillion dollars in debt.  With gross federal debt currently a smidge under $20 trillion, Trump's plans would have us speeding into the Athens city limits in two or three years.

We also should not be surprised that the other staple of budgetary dishonesty -- the Laffer Curve -- is back in play.  In two columns last week (here and here), I went back over the articles of faith of the Church of the Perpetual Supply-Side Miracle.  It was no trick to predict that Republicans would soon be back to claiming that their tax cuts would magically create growth.

It was surprising, however, that Trump's Treasury secretary, Steven Mnuchin, has become a born-again supply-side fundamentalist.  As I wrote last week, even many conservatives do not buy into Laffer's nonsensical idea that tax cuts can lead to reduced deficits.

In what we might think of as the Conservative alternative to the Orthodox version of the supply-side faith, many conservatives limit their claim to the idea that the trickle-down effects of their regressive tax cuts would increase economic growth to some extent, thus partly offsetting the loss in revenue due to the original tax cuts.

This is the basis of so-called dynamic scoring, a tax-cut friendly estimation method that the Republicans immediately ordered the Congressional Budget Office (CBO) to adopt after they retook control of the Senate in 2015.  Even this more moderate version of supply-side economics, as I argued at the time, cannot be justified by the evidence, but at least it is not completely demented.

Enter Mnuchin, who asserted on Monday that "tax reform will pay for itself with economic growth."  Nothing to see here, folks.  What might look to your untrained eyes like debt-increasing tax cuts will make everyone so rich that we will not actually have ended up cutting your tax bills."  And remember that Mnuchin is supposed to be one of the few responsible adults in Trump's cabinet, not in the category of Betsy DeVos, Rick Perry, Jefferson Sessions, or Scott Pruitt.

We must, however, take a moment to think about how the White House might spin Mnuchin's comments.  Think about how Trump's spokesman, Sean Spicer, might handle this.  After all, a man who can describe a naval carrier group's path away from North Korea as a movement (at some point) toward North Korea should be able to make Mnuchin's assertion meaningless.

Mnuchin, Spicer might argue, did not say that Trump's tax cut will completely pay for it self.  And he did not say that it would happen right away.  Maybe, like that aircraft carrier, the claim is only that the economy will eventually grow, which will make it easier to service the debt that Trump's tax cuts will create.  Or maybe we will learn that the first year of the tax cut will be fully paid for by multiple years of growth (and the revenue losses for later years are not worth talking about).

The possibilities are endless, but at this point we have a White House that is desperate to sell a big tax cut, which means that the lies will come fast and furious.

As satisfying -- and even fun -- as it can be to point out Trump's shameless dishonesty, it is important not to make matters worse by reinforcing the anti-debt narrative.  The story is not: "Trump promised to save us from death by debt, but he is just another big spender who will pile more debt on our children's and grandchildren's backs."  Not only is that story untrue, but it makes the job of centrists and liberals who oppose Trump more difficult.

The real story is: "Trump dishonestly claimed that all debt is bad, but now he is planning to borrow more money for all the wrong reasons, making it impossible to borrow and spend for economically and morally good reasons."  Again, this is not a matter of debt being inherently bad but of Trump piling up debt for bad reasons.

It is important to return to some basic concepts in order to untangle the various lies that Trump and the Republicans have been telling.  First, the actual national debt is not the "gross" debt (which, as I mentioned above, is currently $19.8 trillion).  The correct measure of the federal debt is the amount "held by the public," which is currently $14.3 trillion.

But so what?  Is that number big or small?  With the nation now producing income (GDP) at more than a $19 trillion annual clip, debt held by the public is about 75 percent.  But again, is that big or small?  It turns out that our debt-to-GDP ratio puts us below some of the countries that we think of as competitors (for example, the UK) and roughly on par with "fiscally responsible" countries like Germany.

In fact, however, even that is the wrong question.  No matter whether you want to call the U.S. debt level high or low or anything else, what we really want to know are the consequences of letting it grow as opposed to the costs of forcing it to shrink.  And that means that we have to ask how and why it might grow or shrink.

As I argued in my "liberal supply-side" column, there are ways in which the economy can be improved by increases in government spending and thus also by certain types of tax cuts, such as the Earned-Income Tax Credit (EITC).  Notably, however, the Republicans have become hostile to the EITC, and their order to force the CBO to adopt dynamic scoring explicitly limited the analysis to the growth effects of tax cuts and not spending increases.

Why does this matter?  No matter the overall debt or the trend in deficits, there are plenty of ways that we could borrow and spend money that would help the economy.  For example, a health care economist recently summarized the research on drug treatment programs, showing that they have payoff rates on the order of three or four dollars for every dollar spent, even limiting the analysis simply to dollars saved through reductions in crime.

Do Trump or the Republicans want to add to the debt to spend more money on that?  Of course not.  They cannot even get themselves to spend money on things that we already do that have important payoffs.  They recently reinstated their dangerous private debt collection programs, rather than getting much more bang for the buck by adequately funding the IRS.

And because Republicans long ago decided that non-automobile transport is for socialists, they are again attacking Amtrak and other public transit programs, cutting investments such that the economy will be harmed as workers and businesses are increasingly slowed down by delays, derailments, and worse.

There are, in fact, plenty of ways that money could be spent on public schools and universities, scientific research, and many other public investments that would increase growth.  They would not completely "pay for themselves," but they would be sustainable.  They could even be reconfigured as tax cuts, if necessary, because that is more a matter of form than substance.

But Trump and the Republicans will do none of that.  They are committed to the idea that straight-up tax cuts for rich people and corporations are the key to prosperity.  They will slash spending on programs that actually help people to make those tax cuts easier to pass, and they will lie about the tax cuts paying for themselves.

The only thing standing in the way is their own incompetence and internal disagreements about how to redistribute income upward.  At some point, however, they are likely to pass something.  And the rich will get richer while everyone else is told to wait for the magical spell to take effect.


Shag from Brookline said...

The Trump Administration frequently defends the failures of Trump to keep his campaign promises claiming such were hyperbole (aka El Toro droppings).

Shag from Brookline said...

Reports on Trump's tax plan aimed at reducing corporate taxes trigger headlines on a revival of the Laffer Curve (aka El Toro droppings) that economists and late night comedians can readily hit out of the park.