“To shut down or not to shut down” is what Donald Trump is yet again agonizing over right before our eyes.
I first posted about Trump’s tendency to be overly melodramatic about this question in September when he endlessly shared his thoughts about whether he would shut down the government if he didn’t get the money he wanted to start construction on his wall between the United States and Mexico. One day it was yes (“to be”) and the next day it was maybe or no (‘not to be”).
And some days it was both and, therefore, the Trump version of the whole soliloquy from “Hamlet.”
Ultimately, the answer was no shutdown. Despite his repeated threats that it was funds for his wall or else, Trump ultimately signed a continuing resolution without getting anything. In the end, he wussed out.
This may not say much about what Trump is going to do this time. After all, the situation is somewhat different given the impending Democratic takeover of the House of Representatives in less than six weeks and the perception by many that this is Trump’s last chance to fund his wall.
But given that big change, it’s noteworthy that Trump seems to be just as conflicted about a shutdown now as he was back in September. He continues to be anything but resolute and is using very Hamlet-like conditional language (“would” and “could” instead of “will”) to explain what he might do.
And his answer not only has changed daily, it’s been changing hourly. As reported today by Jacqueline Alemany in The Washington Post, Trump said two very different things in separate interviews on Wednesday. He told the Post “he was open to Plan B” if Congress didn’t provide the full $5 billion he wants for his wall but told Politico that he was ‘totally willing’ to shut the government down in the fight.”
All of this points out two very important things as far as a government shutdown next week is concerned.
First, Trump himself is not yet sure about either what he wants to or will do.
Second, anything Trump says each day between now and midnight next Friday must be taken with a whole shaker rather than just a grain of salt.
One of the biggest questions now being asked by Wall Street and Washington pundits alike is whether, with the deficit already projected to exceed $1 trillion each of the next few years, will Congress and the Trump administration be able and willing to use fiscal policy when the U.S. economy tanks.
This is no longer a hypothetical to be discussed over drinks after work. It became a real issue over the past few weeks after both Goldman Sachs and J.P. Morgan both projected dramatically slowing economic growth that confirmed what the Congressional Budget Office has been saying since August.
In the past, a slowing economy has typically gotten Congress and the president to enact tax cuts and spending increases. The resulting higher budget deficit was considered normal, appropriate and politically acceptable.
But the federal deficit is already high because of last year’s tax cut. It’s officially projected by the Trump administration’s Office of Management and Budget and Treasury Department to be close to $1.1 trillion this year and it’s not at all certain that U.S. politics will tolerate it going much higher.
Without any further enacted changes in revenues and spending, CBO is forecasting that the deficit will exceed $1.5 trillion in 2028. A new stimulus program could easily get that to $2 trillion.
The previous nominally high record deficit was $1.4 trillion in fiscal 2009.
So the U.S. economy may need help but will American politics, which has been at least rhetorically anti-deficit since Puritan times, allow it?
I’m betting on a much higher deficit.
First, the U.S. may be rhetorically against deficits, but its actual track record is the exact opposite. In the 73 years since the end of World War II, there have only been eight (11 percent of the time) surpluses.
Second, even a rapidly rising, record-setting budget deficit will be no political match for the higher unemployment and lower stock markets that will come from an economic slowdown. The Democrat-controlled House and Republican-controlled Senate will be racing each other to show which one deserves more credit for dealing with it.
Third, Trump, who has already amply demonstrated that he’s okay with big deficits, won’t do anything to stop Congress from raising it even further given that his own reelection will be jeopardized if the economy isn’t doing well.
Fourth, it will make no difference that unemployment will be low and the stock market high relative to historical standards. The comparison voters (and, therefore, Washington) will make will be to recent their experience and expectations rather than to what they were like decades ago. By that standard, it will be “Damn the deficit, full speed ahead.”
Fifth, the split majorities in the next Congress makes a big spending increase/tax cut deal more likely than if a single political party controlled both the House and Senate. Neither Republicans nor Democrats will be able to claim all the credit for dealing with the economy, but both will be able to avoid all the blame for the record-setting increased deficit when they agree to what the other wants.
It shows that, two years in to his presidency, Trump still doesn’t understand enough about the federal budget to make informed choices about what it will take to reduce the deficit as he said before the election he wants to do.
(For the record, what it will take to reduce the deficit is my first on the first day of the graduate course I teach at Georgetown University’s McCourt School of Public Policy.)
It also demonstrates a complete failure by Office of Management and Budget Director Mick Mulvaney and the rest of the Trump administration’s economic team. How is it possible that they have had so little influence with and impact on the president that, almost two years after he took the oath of office, he is so clueless?
But I have to wonder whether this thinking is based on the very false premise that Trump wants to propose real deficit reductions. He may instead be looking for gimmicks and a “drain-the-swamp”-like slogan that can be repeated at his rallies. This would allow him to look like he cares about the deficit without taking any of the political risks of proposing the things that would actually reduce it.
Remember, this is the same Trump who was very comfortable embracing dynamic scoring to justify his big tax cut when mainstream fiscal policy and tax experts were adamant that it would spike the deficit (which it has).
This is also the Trump that had no problem sending others in his administration and his House Freedom Caucus allies to try to destroy the Congressional Budget Office when he thought CBO’s analyses would hurt what he wanted to do on health care and taxes.
Trump was also perfectly happy to grossly underestimate the cost of his military parade, continues to refuse to provide a detailed cost estimate for the wall he wants built between the U.S. and Mexico, still hasn’t said what his space force will cost and was happy to take credit for a $1.5 trillion federal infrastructure plan that relied on state and local governments to provide most of the money.
It would not be at all surprising, therefore, if Trump is looking for the same type of budget gimmicks now. For example:
A plan for the federal government to sell and then lease back some of the national parks.
A big sale of other government-owned assets.
Changing the definition of the budget deficit so certain big federal expenditures — such as the Defense Department and interest on the national debt — are excluded.
Changing the federal fiscal year so it’s 18 months for revenues but only 12 months for spending.
Renegotiating interest payments on the national debt.
These are all substantively and procedurally ridiculous. Then again, so was Trump’s bald-faced lie during the 2016 campaign that Mexico was going to pay for the wall and he easily got away with that.
All of this is the Trump version of the scene from the movie “Animal House” where, when faced with the realization that the fraternity he wants to expel is already on probation and there’s not much more he can do using established protocol, the dean invents something new — “double secret probation” — to deal with his problem.
Watch the clip below from the movie and tell me that you can’t see Trump and Mulvaney having that exact conversation.
I’ve consistently been one of the most bullish people about the possibility of government shutdowns. I’ve seen one around every corner, behind every door and under every rug.
But I’m changing my stripes — or animals — from bull to bear over the potential Trump-induced shutdown this December that some think is close to inevitable. It may be far less likely than many are assuming.
If there is a fight, it will be over funding for the wall President Trump wants built between the United States and Mexico. GOP leaders talked Trump into waiting until after the election to make a stand and, with the continuing resolution set to expire in less than two weeks (take a look at the countdown clock on the budgetguy.blog’s home page for the exact number of days as of when you read this), the deadline is rapidly approaching.
But is the showdown rapidly approaching as well?
On the one hand, it makes sense for Trump to push now for the $5 billion (out of what’s been reported to be a total cost of $25 billion or more) he wants for his wall in fiscal 2019. With Republican control of the House of Representatives about to end, this December could be Trump’s last chance to get it.
Trump has shown himself to be a total wimp when it comes to making good on his previous threats to shut the government.
Or, if he waits until the next Congress, the only way Trump might get the funds may be to make a deal with the new Democratic House majority that will likely want something he finds especially distasteful — his tax returns, compliance by his family and cabinet with congressional subpoenas, etc. — in exchange.
If that’s his thinking, a shutdown this December will be a real possibility.
But that might not be his thinking.
Trump may actually prefer not to get his wall this December because it may be politically better for him to:
1. Keep the issue of the wall alive over the next two years so he can continue to use it as he runs for reelection.
2. Use the issue to enrage and motivate his base over immigration.
3. Blame the next Congress’s Democrat-controlled House rather than this Congress’s Republican-controlled House and Senate for not providing the funding.
For all his chest thumping, tweet-storming and budget braggadocio, Trump has shown himself to be a total wimp over shutting the government. Rather than vetoing an appropriation that didn’t have the money he wanted for his wall, Trump has repeatedly…and very noticeably…backed down.
That’s one of this biggest reasons that what Trump said to reporters just a week or so ago –“This would be a very good time to do a shutdown” — wasn’t taken as anything but more of his huffing and puffing and yet another empty threat to blow the government’s house down.
It’s also one of the big reasons there may not be as much to this latest shutdown ultimatum as it appears.
Neither Goldman Sachs nor J.P.Morgan say it directly, but their latest economic forecasts effectively confirm what the Congressional Budget Office and many private analysts have been saying for some time: The Trump administration’s taxing and spending policies will increase the federal budget deficit very significantly over each of the next few years.
And these annual increases in the budget deficit will be on top of the 17 percent spike from fiscal 2017 to 2018 that has already occurred because of these policies.
Both Wall Street banks project that U.S. economic growth will slow considerably next year.
Goldman Sachs expects the economy to grow by 2.5 percent in both the fourth quarter of 2018 and the first quarter of 2019. Growth will be even slower over the rest of the year: 2.2 percent in Q2, 1.8 percent in Q3 and 1.6 percent in Q4.
Treasury and OMB have already projected a deficit of approximately $1.1 trillion in 2019, and that assumes the Trump administration’s mid-session review forecast of an increase in growth to 3.2 percent in 2019.
The new Goldman Sachs and J.P. Morgan forecasts also project lower growth than the forecast published most recently by the Congressional Budget Office. In its August economic update, CBO said real GDP growth (fourth quarter over fourth quarter) would fall to 2.4 percent in 2019 and then drop further to just 1.7 percent in 2020.
Assuming the stalemate between the Republican Senate, Trump White House and Democrat-controlled House that some are predicting and, therefore, that all current spending and taxing laws remain unchanged, the lower GDP growth will lead to even higher deficits than are currently forecast: $1.2 trillion or more in fiscal 2019 will definitely be possible. That would be a 46 percent increase over 2018 and an 80 percent increase over 2017.
Further legislated reductions in taxing or increases in spending — an infrastructure plan or permanent extension of the individual tax cuts, for example — would increase the deficit even further.
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If I’m so adamant that what the committee came up with is such budget tripe, they want to know the changes I would recommend instead.
That’s a totally fair question that, as a budget wonk, I’m ecstatic about being asked, especially because it gives me the opportunity to include my picture above this post with my answers.
The main issue is simple: Despite their continued public protestations to the contrary, members of Congress don’t want to do any of the politically very painful things that responsible budgeting — like tax increases and spending reductions — sometimes require. The current budget process enables this behavior because it doesn’t force the House and Senate either to make those decisions or to take responsibility for not making them.
The only way to correct this is to create several hard-to-waive nudges/penalties. That’s what’s behind my big four proposed fixes.
1. No Budget Resolution, No Other Legislation.
Annual congressional budget resolutions were intended to force Congress to be held accountable on the deficit. Until they were created by the Congressional Budget and Impoundment Control Act of 1974, Congress voted for individual spending and revenue bills but never had to vote on a full budget that compared each year’s total spending with total revenues and, therefore, showed the deficit or surplus.
That worked until the House and Senate realized that the skies didn’t darken, lightning and thunder didn’t come down from the heavens and evil demons didn’t rise from below if they didn’t adopt a budget. There are, in fact, no political or other penalties for Congress failing or refusing to agree on a budget resolution.
My recommendation to deal with this is to change House and Senate procedures so that neither house is allowed to consider any other legislation — certainly not appropriations or tax bills but also no authorizations or even the naming of post offices — until the budget resolution conference report for the coming year is adopted. This requirement could not be waived under any circumstances and the only exceptions would be for bills that could pass with an extra-super majority of, say, 75 percent.
This will create a constituency for passing a budget resolution: every interest group, the White House and every House and Senate committee that wants Congress to do something on any other issue. The pressure on Congress both to do a budget and to do it early in the year would be intense.
I’m not naive. The way around “No Budget, No Other Legislation” will be for Congress to adopt a totally meaningless, pro forma budget that, for example, ridiculously projects a balanced budget with spending cuts and/or tax increases that are never going to be approved and with a wildly optimistic “rosy scenario” economic forecast that’s never going to happen.
If that’s what Congress does, there’s no procedural change that will make any difference whatsoever.
2. An Automatic Continuing Resolution At Half The Rate Of Inflation.
To stop government shutdowns, I suggest a variation on a proposal that has been constantly mentioned whenever the budget process is said to be broken: An automatic continuing resolution that keeps all agencies and departments operating whenever Congress and the president can’t agree on their regular appropriation by the start of the fiscal year.
My variation is the fiscal version of a Solomon-like decision. My automatic CR would fund all departments and agencies at the current level plus half the rate of inflation projected by the Congressional Budget Office. That would increase spending compared to what’s currently expected but reduce it compared to the baseline. That would be a lose-lose for everyone and an incentive to agree on the regular appropriation.
3. Eliminate Having A Separate Vote On The Debt Ceiling.
The federal government’s borrowing limit should be raised automatically to the level projected in the budget resolution. Congress having to vote on a budget that assumes a deficit and, therefore, higher borrowing and to then have to vote again on raising the debt ceiling to allow the government to borrow to that level makes no sense whatsoever. Having periodic threatened defaults over the debt ceiling is even more nonsensical.
4. Fully Fund The Congressional Budget Office.
CBO, the only truly successful part of the congressional budget process, includes the best collection of nonpartisan analysts in Washington. But CBO is understaffed and overworked. Give it the resources it needs to provide Congress with all the information good budget decisions require.