New Promised Trump Tax Cut Is A Big Nothingburger

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President Trump made headlines late last week with another of his shoot-from-the-hip policy pronouncements, this time that there would be a tax cut before the midterm elections. According to The Washington Post, Trump said the cuts would get done “sometime just prior, I would say, to November.”

I’m going to give Trump the benefit of the doubt and assume that he meant that only the specifics of his new tax proposal would be announced rather than that the plan would be enacted prior to November. With Congress out of session and the GOP leadership almost certainly against calling its members back to Washington during the final days of the election, it’s hard to imagine that he meant anything but that there would be an announcement.

(I shudder to think about the possibility that Trump either thought this actually could get done legislatively over the next two weeks or that he could ignore the U.S. Constitution and simply impose the changes he wants without congressional action.)

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But even assuming that what Trump meant was just an announcement, it’s hard to see how what he might propose (For the record, I’m not at all convinced he will actually propose anything) can get done in the lame duck. Here’s why.

1. The Trump tax plan can be filibustered in the Senate.

2. Unless Majority Leader Mitch McConnell (R-KY) is willing to do away with the legislative filibuster, which he so far has been completely unwilling to do, the only way to avoid a filibuster of the Trump tax bill will be to do it as a reconciliation bill.

3. But reconciliation may only be done if both houses of Congress adopt a budget resolution conference report with reconciliation instructions ordering it…and neither the House nor Senate have passed a budget resolution yet this year. The House Budget Committee has approved one but there has been no activity in the Senate.

4. Therefore, before a new Trump tax plan could be considered, a budget resolution with its projected trillion-dollar deficits would have to be adopted. That will be much easier to do after than before the election, but still won’t be a simple vote for some GOP members even if it would make a tax cut easier..

5. And it will take time. Even with a truncated process, adopting a budget resolution is likely to take at least two weeks…and probably closer to three or four.

6. Meanwhile, votes become less reliable the longer a lame duck continues as retiring and defeated representatives and senators become less interested in their current job and more concerned about what’s next. If the past is any guide, some will even stop coming to Washington entirely.

7. This is not to say that enacting another tax bill will be impossible, just that it will be very difficult. The process could be expedited if the House passed the budget resolution already adopted by its budget committee, if the Senate then agreed to what the House passed with an amendment requiring reconciliation, if the House then passed the budget resolution with the Senate amendment, if the House Ways and Means Committee quickly adopted the Trump plan, if the full House quickly passed what the committee approved and if the full Senate bypassed its Finance Committee and adopted the House-passed bill without making any changes.

8. That’s six ifs. Add in the typical no shows during a lame duck and you get a recipe for no action.

That will put the new Trump tax plan on the same legislative trash heap as his wall, his space force, his infrastructure proposal and his military parade.

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Trump 5% Budget Plan Shows That He’s Weak

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President Trump tried to sound powerful when he announced that he had ordered his cabinet members to come up with five percent reductions in their fiscal 2020 department or agency budget.

Here’s why Trump’s plan is actually the total opposite of bold.

1. The plan isn’t for the current year (fiscal 2019); it’s for 2020, the budget that Trump is legally required to submit to Congress early next year and won’t start to be implemented almost a year from now. In the meantime, Trump’s own Department of Treasury and Office of Management and Budget project that the deficit will grow by $306 billion to almost $1.1 trillion. Trump isn’t proposing to do anything about that.

2. Trump could have proposed that Congress “un-appropriate” spending in the current year by using the impoundment control procedures specified in the Congressional Budget Act. He didn’t.

3. Trump’s pronouncement was that his cabinet come up with a plan to reduce “discretionary” spending within their agency or department. That’s only about 25 percent — roughly $1.1 trillion — of the total amount expected to be spent in 2019.

(Note: The $1.1 trillion in discretionary spending is roughly equivalent to the total projected 2019 deficit. Trump would have to propose to eliminate all of it to completely balance the budget this year.)

4. If Trump had wanted to propose something impactful he would have included most of the rest of the budget — mandatory spending other than interest on the national debt. But just before the election that would have subjected him to the very politically damaging charge that he was going to propose cuts in Social Security, Medicare and veterans benefits.

5. There is a strong possibility that this wasn’t even the new order Trump made it out to be. Asking cabinet departments to develop different spending-cut scenarios (-2 percent, -5 percent, etc.) is the standard procedure every president uses early in the year to formulate the budget. There’s a good chance, therefore, that the cuts Trump just said he ordered were actually developed around this past June.

In other words, the Trump five percent cut plan was just about the least he could say he would do and still sound like he was doing something.

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Trump’s 5% Budget Cut Plan Will Still Spike Deficit To Over $1 Trillion

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Just in case you haven’t heard about Donald Trump’s order yesterday that each member of his cabinet develop a plan to reduce her/his budget by five percent, take a look at these reports from CNBC and The New York Timesand then realize how much Trump doesn’t understand about the federal budget he’s charged with managing.

The Trump plan supposedly is in response to the political and economic flak he is taking after his own Department of the Treasury and Office of Management and Budget released a report this week officially showing that, because of Trump policies, the federal deficit had increased by 17 percent from 2017 to the just-completed fiscal 2018, and would increase to more than $1 trillion this year. Congressional Budget Office projections show the deficit staying well above $1 trillion for years.

Like most of Trump’s policy pronouncements, this one was very short on details.

Presumably, he was talking about a five percent cut for the fiscal 2020 budget he is supposed to submit to Congress next year. That means that the 2019 deficit will still come close to the $1.1 trillion estimated in the Treasury/OMB report.

And it could be much higher. In addition to the five percent reduction, Trump has previously indicated that he wants another tax cut (currently estimated to reduce revenues by $630 billion over ten years) and an infrastructure program ($1.5 trillion in new spending over ten years but it’s not clear how much of that would be federal as opposed to state dollars) that would add perhaps $100 billion to the 2020 deficit.

And Trump is still insisting that Congress pay for his wall with Mexico, which would add billions more.

But even if you put Trump’s deficit add-ons aside, the his five percent plan would have little positive impact on the government’s bottom line.

Here’s what the plan would look like using fiscal 2019 — where we have better numbers — rather than 2020.

First, the Treasury/OMB report said that total 2019 spending will be $4,510 trillion and five percent of that is $225 billion. Subtract that from the projected deficit of $1,085 billion and you get a deficit of $860 billion. That would still be an increase over the $779 billion deficit recorded in 2018.

(For the record, a 24 percent spending reduction would be needed to completely balance the 2019 budget.)

But much of the $4,510 billion can’t or won’t be reduced by five percent. For example, interest on the national debt literally cannot be cut and Trump is highly unlikely to want to reduce military spending by the full five percent, if at all.

The big question is whether Trump would dare to propose a five percent cut in Social Security, Medicare, veterans benefits and other mandatory programs. Although Senate Majority Leader Mitch McConnell (R-KY) has been saying in recent days those programs had to be cut to reduce the deficit, that’s probably more of a pre-election sop to the GOP base than a serious plan.

In addition, it’s hard to believe that Trump will propose to cut any of these programs just as his 2020 reelection campaign is getting underway.

I estimate that spending in 2019 on interest, the military and mandatory programs will be about $3,350 billion, so excluding those programs will leave $1,160 billion that would be subject to Trump’s five percent edict. That would be $58 billion.

A $58 billion cut from the Treasury/OMB-estimated $1,085 deficit would result in a deficit of $1,027. But add in the revenue loss from another tax cut, an infrastructure program and more spending on the wall and unexpected hurricanes or other disasters that are almost certain to occur, and the Trump 2019 deficit is guaranteed to exceed $1.1 trillion.

For 2020, it could easily exceed $1.2 trillion.

And all this assumes that Congress will agree to the reductions, which it probably won’t do.

Trump Will Say Democrats Stole The 2018 Election…And 7 Other Predictions

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Less than a month before the election, about a month before the start of the lame duck session of Congress, a little over about 50 days before the next government shutdown deadline on December 7 and less than three months before the next Congress begins, these 8 things are both keeping me up at night and giving me nightmares while I’m awake.

It’s therapeutic (at least for me) to share them.

1. Trump Will Insist The Democrats Stole The 2018 Election

If Democrats win one or both houses of Congress this November, Trump will insist that it happened because (1) they colluded with the Russians or Chinese, (2) they hacked the election results in all 50 states, (3) illegal immigrants voted in record numbers or (4) all of the above. Trump will say he has information proving that the results weren’t a referendum on him, that he doesn’t plan to change a thing and that he will make the Democrats pay for stealing the election.

Then see #s 5,6, 7 and 8 below.

2. Big Federal Budget Deficits Are Now Permanent

The Trump administration will soon verify what the Congressional Budget Office reported last week.  When the U.S. Treasury releases its monthly statement for   September, it will confirm that the fiscal 2018 federal budget deficit increased to close to $800 billion dollars this past year and will be at or above $1 trillion for 2019.

But that will be just the beginning.  With more tax cuts about to be considered (see #3), a trillion-dollar infrastructure plan likely to be enacted at some point in the next few years, hurricanes and other disasters almost certainly on the horizon and no serious revenue increases or spending reductions likely to be considered, $1 trillion or higher federal budget deficits are now a permanent part of the U.S. economy and American politics. The previous political goal of projecting on paper (let alone actually achieving) a balanced budget in 10 years is now gone…forever.

3. Another Huge Tax Cut Will Happen This Year

I’m increasingly convinced that, during the lame duck, the Senate will take up the tax cut the House passed just before it recessed for the election. My sources on Capitol Hill tell me that preparations are already underway for Congress to quickly adopt a budget resolution at the start of the lame duck just so the Senate will be able to avoid a filibuster on the tax bill.

This will increase the deficit by another $600 billion to $700 billion over the next decade, and much more after that.

4. The Budget Deficit Will Reach $2 Trillion By 2024

There will be an economic downturn at some point over the next few years. Combined with #2 and #3 above, this will increase the deficit to close to $2 trillion.

5. Trump Will Ignore Democratic Subpoenas And Set Off A Huge Appropriations Fight

The common assumption seems to be that, if the Democrats are in the majority in one or both houses of Congress next year, as part of official committee investigations they will inundate the Trump administration with subpoenas for documents and witnesses. Not only do I seriously doubt that the White House will meekly comply with these subpoenas, I expect the president to routinely assert every possible reason that he doesn’t have to do so.

Yes, the courts will then get involved. But I also expect congressional Democrats to use next year’s appropriations process to push the administration to comply. It wouldn’t be shocking, for example, if Democrats threaten the funding for several assistant secretaries and the White House counsel in response to the White House’s stonewalling.

6. Shutdown Showdowns Are About To Become Even More Of A Thing

There will be multiple shutdown fights for two reasons.  First, Trump may not agree to full-year funding in any form (a continuing resolution, omnibus appropriation or Department of Homeland Security appropriation) without money for his wall. He’s far more likely to agree to a series of short-term funding bills that allow him to keep raising the issue, especially if he’s able to blame a Democratic majority for the wall not happening. That will set up frequent shutdown threats every year.

Second, see #5.

7. Trump Will Precipitate A Debt Ceiling Fight Sooner Than Expected

The federal debt ceiling was suspended by the Bipartisan Budget Act of 2018 until March 1, 2019, and the overwhelming assumption is that the Treasury will use “extraordinary measures” (the Washington equivalent of getting a cash advance on one credit card to make a payment on another) to delay raise the debt ceiling until September.

But just because Treasury has always used extraordinary measures in the past doesn’t mean it’s guaranteed to use them this time. Trump could easily at least threaten not to use these bookkeeping gimmicks at all or to stop using them at some point before September if the president doesn’t get something (such as funding for his wall, a space force and a military parade) he wants in return.

8. Trump 2020 Budget Will Be An Even Bigger Political Statement

The first two Trump budgets basically were campaign brochures masquerading as official federal documents. The next Trump budget — fir fiscal 2020 budget — will be released as his reelection efforts formally get underway and so will have very little to do with governing. It will be largely forgotten on Capitol Hill within two weeks of it being released.

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New CBO Report Shows GOP Tax Bill Is The Only Reason The Deficit Is Increasing

No…The federal budget deficit definitely is not a spending problem.

In its just-released monthly budget review, the Congressional Budget Office estimated that the federal deficit for fiscal 2018, which ended a week ago on September 30, was $782 billion, a $116 billion increase over the $666 billion deficit recorded in 2017. CBO said that revenues grew by just $13 billion and so were essentially flat compared to what the government collected in 2017. Spending grew by $129 billion, a 3.2 percent increase over 2017.

It would be easy — but very very wrong — to conclude that the increased spending was the reason the budget deficit rose from 2017 to 2018. After all, revenues were about the same both years while spending was higher.

But this overly simple explanation only works if you compare revenues and outlays to what was actually collected and spent the previous year. The explanation is the exact opposite when the substantively correct comparison — to what was expected in 2018 if all tax and spending laws had remained the same — is used.

In June 2017, CBO issued its updated “Budget and Economic Outlook: 2017-2027″ report that showed federal revenues rising in 2018 under current law to $3.5 trillion (Take a look at Table 13). That means the tax bill reduced revenues this past year by about $200 billion compared to what they would have been had it not been enacted.

In that same report, outlays in 2018 were projected to be $16 billion less under current law than the amount CBO now says was actually spent last year.

In other words, the real reason the budget deficit grew from 2017 to 2018 was because revenues were substantially less than what they would have been without the tax bill. Had it not been enacted, the deficit would have dropped below $600 billion instead of rising to close to $800 billion

This is not the spin anti-federal spending activists will use. Indeed, as I’ve posted about previously, even before the tax bill and its projected $1.5 trillion revenue loss was adopted, so-called conservative interest groups such as the Heritage Foundation were pushing the narrative that higher spending was the only reason for the deficit and revenues had nothing to do with it.

The two CBO reports cited above decisively show that’s just not true.