Month: October 2018

What I said on Bloomberg TV This Morning About The Deficit.

For the record, I love working with Tom Keene and Francine Lacqua on Bloomberg Surveillance.

Follow Stan Collender on Twitter by clicking here @thebudgetguy

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Don’t Completely Discount Trump’s Talk Of A 10% Tax Cut Just Yet

 

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No matter the topic, Donald Trump has proven again and again both that he’s not very articulate and that his knowledge of the U.S. Constitution, the legislative process in general and the congressional budget process in particular is limited.

That’s why it hasn’t been surprising that those who are closely following the federal budget and the midterm election almost immediately dismissed Trump’s talk of a ten percent tax cut for middle-income Americans in the next two weeks as a desperate campaign stunt rather than a serious proposal. After all, Congress won’t even be in session.

That’s probably still the most likely analysis of the situation, especially because there have been ample reports that the Republican congressional leadership, including the chair of the House’s tax-writing committee, was caught unawares by Trump’s statement and disavowed all knowledge of the plan.

But what if, rather than making an off-the-wall campaign promise that he has no plan to pursue when the election is over, Trump was actually inarticulately stating what he wants to do and how he plans to do it?

The clue might be Trump’s use of the word “resolution” when explaining how he was going to proceed.

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As reported by CNBC, Trump told White House reporters yesterday,”We’re putting in a resolution some time in the next week and a half to two weeks [and] we’re giving a middle-income tax reduction of about 10 percent.” (emphasis added)

Trump’s use of the word “resolution” might be due to his lack of understanding of how Congress works. But it’s curious that he didn’t use a simpler and more common word like “bill,” legislation,” or “proposal” to describe what he was going to put in.

This is particularly interest because “resolution” has a special meaning in the congressional budget process. Using a “budget resolution” as the first step on the path to the tax cut would make it much much easier to enact.

As I explained in this post yesterday, Congress adopting a budget resolution could prevent the new Trump tax plan from being filibustered in the Senate because that would enable it to be considered with reconciliation, the same procedure used to pass last year’s tax bill.

That’s not to say that going the budget resolution route would be easy or politically painless, but it could work. Here’s how I described it in my post yesterday;

“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.”

It’s not at all hard to imagine Trump being briefed by his staff on this very complicated procedure and that he then garbled what he was told when he described his tax plan to reporters.

Then again, it’s also very possible that there really is no tax plan of any kind.

Follow Stan Collender on Twitter by clicking here @thebudgetguy.

 

 

Trump Revenue Shortfall Was Just Like An Earnings Miss On Wall Street

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You hear it on the financial news channels every time corporations report their earnings: A company that fails to achieve what Wall Street projected is said to have “missed” analyst expectations.

The federal government just had its own version of a big miss.

According to the U.S. Treasury, revenues for the fiscal 2018, which ended on September 30, were $202 billion less than had been expected a year earlier. As a result, the budget deficit spiked by 17 percent to $779 billion.

Both Wall Street’s and the federal government’s type of miss are remarkably alike.

First, Wall Street earnings and government revenue projections are both based on forward guidance provided by, respectively, the companies themselves and three government agencies — the U.S. Treasury, Office of Management and Budget and Congressional Budget Office.

Second, Wall Street updates its numbers through the year to account for the economy and higher or lower costs and sales. Washington revises its revenue estimates through the year based on the economy and changes in law.

Third, and most important, when determining whether the results are good or bad, both Wall Street and the federal government typically compare the actuals to what was projected to happen rather than what previously occurred.

Companies often complain vociferously about this and, when their results don’t meet expectations, point out that they were an improvement over what they achieved the previous year. The projections were wrong, they say.

The market typically ignores these CEO demands that their analysts use a different baseline

But voters often (especially these days) give great credence to those same type of complaints about federal revenues and insist that the previous year is the right comparison.

This past week was perhaps the best example in recent memory.

The Treasury reported that federal revenues for all of fiscal 2018 were $14 billion higher what was collected in 2017 and Republicans said that meant the tax cut enacted last December was doing what was promised (You should see some of my Twitter comments). In Wall Street terms, federal revenues “beat” expectations.

But that compares 2018 revenues to actual results from the previous year rather than expectations. When the correct comparison — to what the Treasury, OMB and CBO projected — is used, revenues fell by $202 billion and this was an unambiguous miss by the federal government.

This is where the big difference between a Wall Street and Washington miss comes into play.

Wall Street typically punishes a stock for a miss and analysts often downgrade it if they believe the results indicate that the outlook for the company has worsened.

By contrast, even if the revenue, deficit and debt outlook has worsened, voters, especially those who want to believe the tax bill will pay for itself, are upgrading their outlook for the Trump administration.

Follow Stan Collender on Twitter by clicking @thebudgetguy

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.

Follow Stan Collender on Twitter by clicking here @thebudgetguy

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.