Trump Budget Based on $2 Trillion Math Error

[babylonsister]

http://nymag.com/daily/intelligencer/2017/05/trump-budget-based-on-usd2-trillion-math-error.html?mid=facebook_nymag

Trump Budget Based on $2 Trillion Math Error
By Jonathan Chait


One of the ways Donald Trump’s budget claims to balance the budget over a decade, without cutting defense or retirement spending, is to assume a $2 trillion increase in revenue through economic growth. This is the magic of the still-to-be-designed Trump tax cuts. But wait — if you recall, the magic of the Trump tax cuts is also supposed to pay for the Trump tax cuts. So the $2 trillion is a double-counting error.

Trump has promised to enact “the biggest tax cut in history.” Trump’s administration has insisted, however, that the largest tax cut in history will not reduce revenue, because it will unleash growth. That is itself a wildly fanciful assumption. But that assumption has already become a baseline of the administration’s budget math. Trump’s budget assumes the historically yuge tax cuts will not lose any revenue for this reason — the added growth it will supposedly generate will make up for all the lost revenue.

But then the budget assumes $2 trillion in higher revenue from growth in order to achieve balance after ten years. So the $2 trillion from higher growth is a double-count. It pays for the Trump cuts, and then it pays again for balancing the budget. Or, alternatively, Trump could be assuming that his tax cuts will not only pay for themselves but generate $2 trillion in higher revenue. But Trump has not claimed his tax cuts will recoup more than 100 percent of their lost revenue, so it’s simply an embarrassing mistake.

It seems difficult to imagine how this administration could figure out how to design and pass a tax cut that could pay for itself when Ronald Reagan and George W. Bush failed to come anywhere close to doing so. If there is a group of economic minds with the special genius to accomplish this historically unprecedented feat, it is probably not the fiscal minds who just made a $2 trillion basic arithmetic error.

[Wounded Bear]

1. It's not a bug, it's a feature...

Assuming it is some kind of "math error" is naive at best, and downright subversive at worst.

Deficits, it's what's for breakfast for Repubs.

[Scurrilous]

2. K&R

[unblock]

3. easy math shows it's ridiculous in practice for a tax cut to pay for itself:

basically, for a tax cut of 5% to pay for itself, the economy would have to grow by 5%.

a 5% tax cut is pretty small (not even 5 percentage points, but simply 5% -- e.g., the top tax rate going from 39.6% to 37.6% is a bit *more* that a 5% cut).

who on earth could seriously believe that cutting the top tax rate from 39.6% to 37.6% could make the economy grow by 5%, solely due to that tax cut???


the "laffer curve" argument has some minimal theoretical merit, but it works only at insanely high tax rates.
cut the tax rate from 99% to 98% and that's barely over a 1% tax cut. given that you're *doubling* take-home pay, it's quite possible that this increases the economy by more than 1%.

but in the range of realistic tax levels, the laffer curve is, well, just a laugh.