Tag: deficit

No Way The Already Soaring Deficit Stops Congress And Trump From Responding To The Slowing U.S. Economy


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.

Follow Stan Collender on Twitter by clicking here at @thebudgetguy.


Trump May Want To Put The Federal Deficit On “Double Secret Probation”


This story from today’s The Washington Post about President Trump’s complete lack of understanding about the federal budget is both fascinating and very scary.

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.


Follow Stan Collender on Twitter by clicking here on @thebudgetguy.

Wall Street Confirms It: Big Increases In The Budget Deficit Are On The Way


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.

J.P. Morgan’s estimates are similar.  The bank expects growth to slow to 1.9 percent in 2019.

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.

Follow Stan Collender on Twitter by clicking here at @thebudgetguy.

Election Results Point To Even Higher Deficits And Big Budget Wars


The split control of Congress resulting from the 2018 midterm elections is not going to lead to a grand bargain on the budget over the next two years that reduces the federal deficit.

Quite to the contrary, the election results mean that the federal budget will be even more of a hyperpartisan issue than it has been during this Congress and that the deficit is going to increase.

The split control will make it easier for Republicans and Democrats to blame each other for the fiscal sins of the past, the spiking deficits of the future and all of the shutdowns and debt ceiling cliffhangers that will be happening day-to-day.

The Democratic majority will give President Donald Trump an even better political foil than he’s had the past two years if (but more likely when) he doesn’t get what he wants. Instead of just blaming Congress, he’ll be able to criticize the Democrat-controlled House for thwarting his agenda. Even if it’s not true, as far as Trump is concerned, everything from a higher deficit to no wall to no military parade to no space force will be the Democrats’ fault.

The budget bottom line is simple: Senate Republicans will have a very different fiscal agenda than House Democrats, and both houses’ tax and spending to-do lists will be at odds with Trump’s plans. Unless there’s a severe economic crisis that requires a fiscal policy response and allows representatives and senators to abandon their established positions, it’s hard to imagine the three sides being able to agree on much of anything over the next two years on the budget.

Here are my top seven federal budget implications of the 2018 election.

1. Lame Duck Madness. The best chance Republicans now have to do away with the Affordable Care Act and to enact another tax cut will be during the lame duck session of Congress that will begin next week. To do that, however, they first will have to adopt a budget resolution that includes reconciliation instructions to repeal ACA and cut taxes…and the budget resolution and reconciliation bill will have to be adopted before the next Congress begins on January 3. Not including Thanksgiving, Christmas and New Years, that’s only about six weeks to get work done that would normally take three months or more to do. And that doesn’t even include the seven appropriations bills that still have to be enacted by December 7.

2. Trillion-dollar (and rising) Deficits. There will be much talk and lots of finger-pointing but little-to-no action over the next two years on reducing the deficit. It wasn’t going to happen if Republicans retained control of both houses of Congress anyway, but it’s difficult to imagine a scenario where the spending cuts and tax increases acceptable to the GOP will be even remotely acceptable to Democrats.

Unless Wall Street demands changes (the long-expected return of the bond market vigilantes), all of the things most likely to be enacted — think infrastructure — will increase rather than decrease the federal government’s red ink. That means that the latest projections from the Treasury/Office of Management and Budget and Congressional Budget Office showing a more than $1 trillion deficit in fiscal 2019 and 2020 now must be considered minimums.

3. Debt Ceiling Cliffhangers. The current suspension of the federal debt ceiling that expires March 1 will provide yet another opportunity for Trump, Senate Republicans and/or House Democrats to withhold their signature or votes unless they get something they want or to stop something they hate.

The assumption that the Treasury will use the same “extraordinary measures” that have been used in the past to delay the day of reckoning on the debt ceiling may be wrong this time if Trump feels the need to create a crisis that will give him leverage over House Democrats. Even if he ultimately wusses out again and the extraordinary measures are implemented, expect Trump to pound his chest and create uncertainty in financial markets about the debt ceiling in the weeks leading up to the deadline.

Also expect Trump to consider only increasing or suspending the debt ceiling for a short time so he can pound his chest more than once before the 2020 election.

4. Multiple Shutdown Showdowns. The House Democratic majority means that there will now be three players in every appropriations fight and that will tremendously complicate what was difficult negotiations without them.

The negotiations will be even worse if (1) Trump uses them as reelection campaign events and (2) House Democrats and Senate Republicans see a clear possibility that, no matter whether it’s a spending increase or decrease, the other side will be blamed.

It’s hard not to see anything but a continual series of threatened shutdowns under these circumstances. Even if Senate Republicans and House Democrats mutually agree to provide the spending increases the other wants, there will be no guarantee that Trump will go along or that he will sign a bill without demanding his own pound of appropriations flesh.

5. Two Years Without A Congressional Budget Resolution.  Voting for budget resolutions has only been barely politically acceptable for most representatives and senators in recent years because it enabled reconciliation to be used and, therefore, a filibuster to be avoided in the Senate. That’s how the Affordable Care Act and the Tax Cuts and Jobs Act were both put in place even though the Democrats and Republicans, respectively, didn’t have 60 votes.

But with Democrats in control the House and Republicans in control of the Senate, there will be few changes to mandatory programs and taxes that will be acceptable to both houses…so there will be no need for reconciliation. That will make the political pain of voting for a budget resolution and its projected trillion-dollar deficits completely unnecessary.

(For those who think reconciliation will be needed for a middle class tax cut of some kind…First, see #1: It might be done during the lame duck. Second, if there isn’t enough Democratic support in the Senate for what the GOP wants and, therefore, to prevent a filibuster, House Democrats won’t agree to a budget resolution that allows reconciliation to be used.)

6. Lots Of Deficit-Increasing Legislation. If they agree on anything, Senate Republicans and House Democrats will demand equal spending increases or revenue decreases for their pet programs. Trump will then want equal treatment for his priorities. An even higher than currently projected deficit (see #2) will be the result.

7. The Next Trump Budget Will Be Totally Meaningless. Trump’s first two budgets were little more than political campaign brochures masquerading as official government documents.

Trump’s next budget will be even more political. With little likelihood that anything he proposes will be taken seriously by the split Congress and with the president’s own reelection well underway by next February, the Trump 2020 budget will be even less of a serious fiscal plan that won’t be taken seriously on Capitol Hill and won’t last long enough to be a major discussion topic on that weekend’s political talk shows.

Follow Stan Collender on Twitter by clicking here on @thebudgetguy.

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


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

Trump 5% Budget Plan Shows That He’s Weak

Trump Smlie.jpeg

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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