Budget Fog and Budget Clarity

by on May 23, 2017 in Economics, Politics

On a clear day we can dream of being free from the farce and incompetence that is Trump. Meanhwile back in reality …

The Trump budget released this week is both indescribably foggy and clear as a bright spring day. It is a perfect statement of ‘Trumpism’ from its devastation of the poor, through its privilege for the rich, and its arrogance towards and ignorance of process. Let’s not get carried away though: this budget, like all presidential budgets is symbolic. It has no meaning other than as an indication of Trump’s personal priorities, which, apparently, are entirely plutocratic in tenor. The American budgetary process is convoluted and ultimate authority resides in Congress. So while a future Federal budget might ultimately embody many of Trump’s ideas, the document released this week is simply a starting point.

Further, given the arcane bureaucracy that is Congress, the budget will be subject to obscure procedural rules, particularly in the Senate where the much discussed reconciliation process will come into play. The Republicans are in a rush to slash taxes for the rich, and they want to destroy health care for the poor, both of which efforts are using up slots in the reconciliation calendar. This means that Congress will be very slow to take up a budget debate and will have to wait for the Congressional Budget Office to score those other efforts before it can start in earnest on budget matters.

With that all said, let’s take a look at Trump’s wish list.

First the clarity.

He wants to slash spending on the poor. And I mean slash. His budget aims at eliminating the deficit in ten years. To do that he takes sharp aim at Medicaid, which he wants to halve; he hammers the Supplemental Nutrition Assistance Program (aka Food Stamps); and, contrary to his campaign promises, he reduces parts of Medicare. These programs combine to be the backbone of support for tens of millions of low income Americans. Attacking them in this way will heighten poverty, increase insecurity, and cost the lives of many who no longer will receive health care of any kind. This part of his program is pure right wing callousness unadorned and direct.

He also wants to slash government. He proposes cuts in the departmental budgets of most, if not all, government departments. Some, like the Environmental Protection Agency, will be cut by upwards of 30%. The State Department, too, gets gutted. Neither of these is a surprise. Two of Trump’s major supporters have been lobbying hard for the cuts. The big oil and coal producers want to gut environmental laws, and Russia simply hates the State Department and all that ‘soft power’ money it slops around the world to entice nations into falling for the allure of democracy. At least Trump is being honest about how much in thrall to Putin he is.

Then, this being a pretty straightforward Republican budget, comes the obligatory increase in offense spending and in national security generally. This includes a big dollop of money for Trump’s wall along the Mexican border. There is no indication as yet about how he intends to get Mexico to pay for this. I guess we will have to wait on that.

That’s the clarity: you will notice that the goal for a balanced budget has no reference to the part the rich will play. Presumably they will benefit but not have to sacrifice. As I said: pure plutocracy.

Next comes the fog:

Given that the Republicans want to cut taxes for the rich, even theses draconian cuts in social programs don’t balance the budget in the desired timeframe. So Trump’s budget assumes a 3% annual growth rate in the economy. This is absurd. In an era of slowing population growth, weak productivity growth, and demographic shifts such as the massive wave of baby-boomer retirement, annual growth of 3% is a pipe dream. It is a fantasy. To add to the stupidity of the assumption is the realization that the Trump team began with it as a foundation for their budget process. It wasn’t an outcome of their budget priorities, it was an input from the very beginning. So the minions putting the budget together had to take the fantasy into account no matter how ridiculous it is.

Now for the good bit: the budget includes the impact of the tax reform Trump has already announced. In the budget those tax cuts, which cut a swathe out of Federal revenues, are treated as revenue neutral. In other words whilst they cut revenues because they are tax cuts, they are assumed to ‘pay for themselves’ by stimulating growth sufficiently for the government to earn extra tax revenues. The government, Trump argues, will make the loss up in volume. This is laughable, but is accepted amongst Republican policy makers who all want to deny blowing the deficit wide open.

Wait for it …

Then, when these tax cuts are included in the budget they are assumed to work this miracle all over again. Yes, you read that correctly. The tax cuts not only ‘pay for themselves’ as tax cuts, but they then repeat the process and stimulate growth to allow the budget to arrive at a balance ten years out.

I have never seen anything so brazenly stupid. Nor as plain dumb. This isn’t the sort of double entry bookkeeping I was taught way back in my accounting days. This is way more imaginativetive. It is a triple entry at a minimum, with more entries to come as the Trump administration flounders about in a mess of its own making.

Trump is inventing growth to cover the brutal insanity of his budget. Even the Republicans are repulsed at his plans. Not that they are much better.

Just as a brief indicator of how the Republican’s various policy goals are contradictory, think about the impact of population growth on the budget. Trump is virulently anti-immigrant. By slowing down the influx of immigrants he is, coincidentally, reducing the increase in the working age population. That acts as a significant drag on growth. Yet this is ignored by the Republican hierarchy. Where is the workforce needed to get growth up to 3% to come from? Are they building a time machine to go back to the 1990’s and boost the birthrate?

As I said fog!

One last thing: normal presidents have decent enough relationships with Congress that their budget proposals conform closely with Congressional political possibilities. This is especially true when the president is lucky enough to have a Congress dominated by his (or her?) own party. In Trump’s case he seems not to care. He has simply dumped this budget without any fanfare in the lap of Congress and walked away. Doubtless he will brag about it when he returns from abroad, but his total disregard for the niceties of political relationship building could not be on more public display. He simply doesn’t give a damn about Congress. Like most want-to-be autocrats he has nothing but disdain for the democratic process. But democracy is a pain. It bites back.

Which is why Trump’s budget will go nowhere.

Fortunately. Because it’s horrendous.

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