Friday, January 20, 2017
Trump's Treasury pick just doubled down on a budget trick that would steal from an entire generation
On Thursday, President-elect Donald Trump's pick for Treasury secretary took the hot seat in Washington, and during his confirmation testimony, he endorsed a classic budget trick that could steal from an entire generation.
"We do believe in dynamic scoring and with the appropriate growth," said Steve Mnuchin, the nominee for Treasury secretary. "I think we want to make sure that tax reform doesn't increase the deficit."
Those two sentences actually contradict each other because "dynamic scoring" is just a fancy way of justifying massive increases in the national debt — increases that would result from Trump's plan to spend $500 billion on infrastructure development while carrying out dramatic tax cuts.
According to an analysis from the Tax Policy Center, that tax plan would exacerbate income inequality and deprive the government of much-needed cash for operations:
"His proposal would cut taxes at all income levels, although the largest benefits, in dollar and percentage terms, would go to the highest-income households. The plan would reduce federal revenues by $9.5 trillion over its first decade before accounting for added interest costs or considering macroeconomic feedback effects. The plan would improve incentives to work, save, and invest. However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80 percent of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts."
Naturally, this sounds awful. But considering Congress is about to be controlled by fiscally conservative Republicans, one would think Trump is about to face some opposition.
But he won't. And that's because there is a way to make Washington's budgets sound more sensible than they are. That's where dynamic scoring, beloved by deficit hawks like House Speaker Paul Ryan, comes in.
It basically allows the government to estimate the future benefit of tax cuts to the economy after making a load of assumptions — including about what a future government might do in response to falling tax revenue.
Those imagined benefits are added to future budget projections, and boom, you've got a healthy-looking balance sheet for America.
The Republican-controlled House adopted dynamic scoring last year, but it's still up for debate in the Senate, where opponents like Sen. Bernie Sanders of Vermont have said it politicizes the budgeting process.
That's in part because there's no exact way to dynamically score anything. There's no set process, and there are no set rules on the assumptions made. So when Republican lawmakers put pressure on the nonpartisan Joint Committee on Taxation to use dynamic scoring, it was unclear to Tom Barthold, the economist who heads the group, exactly what that meant.
What we do know, though, is that both the Reagan and Bush administrations argued that tax cuts, especially for the wealthy, would pay for themselves. In both instances, this got us in trouble.
More from the Tax Policy Center (emphasis ours):
"If 'dynamic scoring' means that Congress can use any macroeconomic model it wants, then we are thrown back 100 or 150 years in terms of the rigor of our thinking. There are too many models with a very wide variety of assumptions and implications. It is not exactly true that you can find a model that will support any claims, but this is sometimes uncomfortably close to the truth."
So all Trump has to do is zoom in on the model that shows that cutting taxes for the rich while spending tons of money will be great for the economy, and this plan is a go.
How hard do you think it will be to find that in Washington?
The opinions expressed in this article are those of the author.