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Defying the Odds

Defying the Odds
New book about the 2016 election.

Wednesday, May 24, 2017

An Egregious Error in the Budget

In Defying the Odds, we talk about the political impact of economic policy.

At Axios, Dan Primack reports:
The White House budget released on Tuesday appears to have double-counted more than $2 trillion in estimated tax revenue. As such, the budget would not balance over 10 years (as promised), even if the U.S. economy were to hit sustained 3% growth (as projected by the White House, but by very few others).
Bottom line: Budget projections are a specious business by their nature, as no one can accurately predict the nation's next decade of economic fortunes. Let alone all of the legislative assumptions required, such as the future of healthcare, the specifics of tax reform, etc. Moreover, White House budget requests have a habit of being ignored by Congress (see: last month). But this double-count is a big unforced error.

The problem: Trump's budget anticipates around $2.06 trillion in extra federal revenue over the next decade, based on the aforementioned increase in economic growth. That new money then would be used to offset Trump's proposed tax cuts, as the Administration previously said that the tax cuts would be revenue-neutral. Unfortunately, that same $2 trillion also is earmarked for closing budget gap. I tried to come up with a household analogy here, but they were all just too ridiculous. Only in D.C. can someone present this sort of math with a straight face.
Straight face: Trump budget director Mick Mulvaney was asked about the double-count today during a press briefing, and didn't directly address the issue. First he blamed the Obama Administration for its own faulty economic projections ― namely because former Obama economic advisor Larry Summers raised the double-count in the Washington Post ― and then said that the budget numbers also did not assume any shrinkage the so-called "tax gap," or the number of people who should pay taxes but don't (something he expects personal tax simplification to help achieve).