Justin Amash’s Twitter Mic Drop In Defense Of Tax Reform

Justin Amash, a Republican congressman from Maine, isn’t typically the one you’d expect to drop the mic on Twitter, but he did so over the weekend. NBC News correspondent Kasie Hunt alleged that tax reform was responsible for the exploding deficit and Rep. Amash set the record straight in less than 180 characters.

On Sunday, Hunt tweeted an observation about Acting White House Chief of Staff Mick Mulvaney’s conversation with CNN’s Jake Tapper in which Mulvaney said that the $2 trillion deficit increase under President Trump required Democratic votes. Calling the comment “an outright falsehood,” Hunt added, “They used budget reconciliation to pass tax reform so they wouldn’t need Democrats.”


The problem for Hunt is that tax reform did not run up the deficit as Amash pointed out. “Do you believe tax reform caused a $2 trillion debt increase in one year?” he tweeted. “Tax reform is roughly $1.5 trillion over 10 years. The debt increase is almost entirely due to bipartisan discretionary spending increases and bipartisan apathy toward ever-increasing mandatory spending.”


Is this an example of he said/she said or is one of the two definitively right?

To settle the dispute, we only need to look back a few months to the end of the federal fiscal year in September. At that time The Resurgent described how the deficit had risen to the highest level in six years:

“Total outlays for 2018 were $4.108 trillion compared to $3.981 trillion in 2017. The spending increases were driven by rising interest costs paid on a greater amount of federal debt as well as increased military spending, which rose by six percent, and Social Security spending which increased by four percent.”

Amash is correct that the majority of the increase in the deficit was due to increased spending. Some of these costs were mandatory spending which was originally authorized by both Democrats and Republicans. The increased cost of interest on the national debt and the rising cost of entitlements like Social Security were bipartisan commitments.

So was the increase in defense spending. The Bipartisan Budget Act of 2018 increased military spending to $716 billion, an increase that President Trump celebrated as the “most amount ever.” As its name suggests, this spending bill was passed with broad support from both parties.

This isn’t to say that tax reform has no part in the deficit increases, however. Amash’s use of the qualifier “almost entirely” suggest that he agrees that tax reform did play a role. There are two components to the deficit, spending and revenue, and both were factors in the deficit.

As we discussed back in October, federal revenue for the year was almost flat despite the booming economy:

“According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.”

So, the bottom line is that revenue for 2018 did not increase while spending did. Because revenue did not go down, it isn’t accurate to say that tax reform drove the increase in the deficit. It is fair to say, however, that without decreasing corporate tax rates, there would have been more revenue and the deficit would have been smaller. In fact, even as the economy boomed, tax revenues from businesses fell by more than 30 percent. Still, if spending had not increased, the deficit would not have increased.

It’s true that cutting corporate tax rates to make them more competitive with the rest of the world was the express purpose of tax reform. It’s also true that without tax reform there might have been a downturn rather than an economic boom, especially considering President Trump’s war on trade. The loss of tax revenue, which was retained by businesses and used by many for capital investments, was a driving factor in this year’s economic growth.

The big question is whether federal revenues will recover in coming years or whether the lost tax receipts will be a bigger driver of the deficit in the future. The conservative gamble is that revenue will be replaced by economic growth. If the government takes a smaller slice of a bigger pie, it will theoretically get the same total amount of pie, if not more.

The problem for conservatives in the Trump era is that the president’s trade policy is at odds with his tax policy. While tax reform let businesses keep more of their own revenues, tariffs and trade restrictions mean that many businesses will have fewer revenues to keep in the first place.

Amash is absolutely correct that spending remains the biggest problem, however. The ongoing shutdown illustrates that about three-quarters of the federal government is on autopilot and does not require appropriations from Congress. It is entitlement spending that is breaking the federal budget.

Meanwhile, neither party seems concerned with the deficit. Where the Republican Party of the Obama era held a hard line on spending, current Republicans have forced a shutdown to because they don’t think the government is spending enough.

Federal Deficit For November Hits Record High Despite Tax Reform

Tax reform stands as the one major legislative accomplishment of the Trump Administration. The measure became law a year ago and, as forecasted, jumpstarted growth in an economy that had been largely stagnant since the Great Recession. Unfortunately, tax reform has so far not lived up to its promise of paying for itself with that increased growth. In fact, the deficit for the 2018 fiscal year, which ended in September, is the largest in six years despite increased growth and revenues.

Figures from November show that the budget deficit was the largest ever recorded for that month. The Treasury Department reported Thursday that federal spending increased by 18 percent to $411 billion for the first two months of FY 2019.

Despite the tax reform and the increased tariff taxes on trade, revenues were flat at $206 billion, about half of what the government spent. The deficit of $205 billion, 49.8 percent of spending, was almost twice as high as last November’s $139 billion deficit. Increased tariffs led to an 86 percent increase in customs duties received but still only accounted for $11.8 billion in revenues.

As Resurgent noted in October, the deficit problem is two-fold. Data from FY 2018 show that while individual tax receipts increased by one percent, overall tax revenues were flat because corporate tax receipts fell by 30 percent. Total federal receipts were $3.329 trillion in 2018 compared with $3.316 trillion in 2017.

The other side of the coin is that spending continues to increase while revenues are stagnant. Military spending increased by 27 percent over the same two months last year per the  . Interest payments on the ever-growing national debt increased by seven percent, partly due to higher interest rates.

The core problem is that the economy is growing but borrowing and spending are growing even faster. Over the past 12 months, spending increased by 5.1 percent while revenues only increased by 0.2 percent. The Trump Administration says that deficits will shrink in coming years as tax reform spurs growth and investment. In the meantime, the deficit is expected to reach the Obama-esque level of $1 trillion in the current fiscal year.

Other factors will drive increased spending that will compete with growth in coming years. Spending on Medicare and Social Security is projected to rise as more Baby Boomers retire. Interest payments on the debt will also increase as the Fed raises interest rates.

In the meantime, Trump Administration trade policy counteracts the economic benefits of tax reform. While businesses benefit from lower corporate tax rates and deregulation, tariffs and trade restrictions make it more expensive and difficult to import and export raw materials and finished products.

As the deficit rises, there is little reaction from either party in Congress. Where Republicans went to the mat to curb President Obama’s spending, most seem to have no qualms about the spending increases under President Trump. In fact, the big news on the budget lately is that Republicans are prepared to shut down the government if Democrats don’t agree to authorize even more taxpayer dollars for President Trump’s pet border wall project.

Flat Revenues And Increased Spending Boost Deficit To Highest Level In Six Years

The economy boomed in the three quarters that followed last year’s Republican tax reform, but economic news has become more mixed of late with a topsy-turvy stock market and Mr. Trump’s tariff war beginning to affect bottom lines and employment. Now comes more news about the deficit that should rankle any fiscal conservatives who remain in Congress or the country at large.

The fiscal year for the US government ended in September and the figures on the federal budget deficit are not good. In fact, even though the US economy is booming, the deficit is the largest deficit run by the government in six years. The deficit for the 2018 fiscal year was $779 billion, a 17 percent increase over the $666 billion deficit in fiscal 2017. The last time the deficit was higher was in 2012 when Barack Obama presided over a deficit of more than a trillion dollars.

The deficit is the difference between what the federal government spends and what it earns. When the federal government spends more than it receives in revenues, as it has every year since 1960 (with the exception of 1998), it must borrow the difference. Each annual deficit is added to the mountain of federal debt which currently stands at more than $21 trillion.

According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.

Under tax reform, withholding was lowered in February for individual taxpayers. Despite this, tax receipts from individuals increased by one percent. Tax payments by businesses fell more than 30 percent for the year, however.

Republicans argue that the tax reform is fueling economic growth, which will eventually lead to higher tax revenues. Nevertheless, Kevin Hassett, chairman of the Council of Economic Advisers, admits that spending and the deficit are big problems.

“The deficit is absolutely higher than anyone would like,” Hassett told Bloomberg last week. “As you watch our next budget come out — and you’ll start to see things in the next few weeks — then you’ll see a much more aggressive stance” on spending issues.

It is perhaps ironic that the Republican deficit hawks would preside over a blowout in the deficit. It is unsurprising, however. Historically, the only thing the parties have been able to agree on is borrowing and spending at ever higher levels and the problem seems to get worse when one party controls both Congress and the White House.

Regardless of the outcome of the election, the deficit problem seems unlikely to change any time soon. Unless federal revenues can be increased or spending can be cut, the 2019 federal deficit is forecast to be on the wrong side of a trillion dollars once again.

Originally published on October 16, 2018

What Could Go Wrong? McConnell Plans To Pass Tax Reform With Only GOP Votes

Majority Leader Mitch McConnell has announced his intention to move forward on tax reform with no Democrat support. To advance the bill without a filibuster by Democrats, Republicans will need to use the Senate’s budget reconciliation process that requires only 51 votes for cloture.

“We will need to use reconciliation,” McConnell told reporters, adding that Democrats are “not interested in addressing” items that Republicans favor. McConnell referenced a letter signed by 45 of the 48 Senate Democrats in which they refused to consider tax plans that cut rates for “the top 1 percent” or that added to the deficit. At the same time, Democrats called for a bipartisan reform bill.

“I don’t think this is going to be 1986, when you had a bipartisan effort to scrub the code,” McConnell said. He added, “Democratic senators who did not sign the letter who may be open to pro-growth tax reform.”

Unlike healthcare reform, where no Democrats broke ranks to vote with Republicans, the failure of three Democrats to sign the letter on tax reform may represent an opening to Republicans. Joe Manchin (D-W.V.), Heidi Heitkamp (D-N.D.) and Joe Donnelly (D-Ind.) are all up for reelection in 2018 in states that Donald Trump won. They are expected to have tough re-election battles, which may inspire them to side with Republicans on the tax bill.

There are difficulties for the Republicans as well. McConnell faced heavy criticism from his own side for his heavy-handed tactics and secret drafting of the healthcare bill. The secrecy and rapid changes in the content of the bill apparently swayed some senators to vote against the Obamacare reform.

Grover Norquist, president of Americans for Tax Reform, recently told Politico that there was less disagreement among Republicans on tax reform than there had been on healthcare. Norquist claimed that the GOP was at “97 percent” agreement after the decision to drop the border adjustment tax on imports, adding, “It’s now a question of making it fit” within the rules for reconciliation bills.

Under Senate rules, reconciliations can be used to pass bills that increase the deficit, but, per the Center on Budget and Policy Priorities, senators can still block bills that are projected to raise deficits beyond the period that the budget resolution covers. Because scoring by the Congressional Budget Office often predicts that tax cuts will add to the deficit, these changes may be required to be temporary, probably less than 10 years, in order to be enacted as a budget reconciliation.

If McConnell and congressional Republicans can avoid the mistakes and division that they experienced in the run-up to the healthcare vote, they stand a slightly better chance of enacting tax reform. If Republicans can split off some Democrat votes to pass a bipartisan bill it would be a major victory for the Trump Administration and one that is sorely needed.



Budget Hawks To Challenge Trump Spending Plans



A battle over spending is shaping up between President Trump and congressional Republicans. Many of Trump’s campaign promises involved spending large amounts of tax money on items from the military to infrastructure. Now budget hawks in Congress are gearing up to try to prevent the deficit from exploding over the next four years.

The Wall Street Journal reports that the tensions surfaced in the confirmation hearing of Mick Mulvaney, a South Carolina congressman who has been nominated by Mr. Trump to head the White House Office of Management and Budget. Mulvaney faced sharp questions from two different camps in the GOP. On one side were defense hawks who were concerned about Rep. Mulvaney’s past votes to cut military spending. On the other were those at odds with Mr. Trump’s campaign promise not to cut Social Security or Medicare.

While the Trump Administration has indicated that it plans some cuts in government spending, the elephant in the room is that programs like the National Endowment for the Arts and the Center for Public Broadcasting aren’t what’s busting the federal budget. Even foreign aid only represents about one percent of federal spending.

Let’s face it, America. We have an entitlement problem.

Entitlements make up about half of the federal budget. The largest entitlement of all is a program that many don’t even think of as an entitlement. Social Security accounts for 24 percent of the federal budget and is the largest single budget item. Health spending in the form of Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and Obamacare subsidies account for another 25 percent. Defense spending is a distant third at 16 percent. Entitlement spending is expected to rise even further as Baby Boomers age and leave the workforce.

“I’m not looking to pick a fight with the president of the United States, but if his goal is to put the country on a fiscally sound course, he’s going to have to address entitlement reform,” Rep. Tom Cole (R., Okla.) told the Journal. “Anybody who is going to balance the budget on discretionary spending [cuts] is on a fool’s errand.”

A fight that is likely to come before entitlement reform is Mr. Trump’s plan for an infrastructure stimulus. Rep. Mulvaney and many Republicans were critical of the infrastructure spending plan before the election, but a separate Journal article noted that Democrats were embracing the $1 trillion proposal.

“We’re challenging him to join us even if his Republican colleagues in the House and Senate aren’t for it,” Sen. Chuck Schumer (D-N.Y.) said. This raises the possibility that President Trump could form a bipartisan alliance with congressional Democrats to enact his spending proposals as well as block conservative attempts at entitlement reform.

The Republican budget hawks will have allies in the Trump Administration. Mr. Mulvaney, a proponent of entitlement reform during his four terms in Congress, said, “I haven’t been quiet and shy since I’ve been here. The president knew what he was getting when he asked me to fill this role.”

Likewise, the fiscally conservative Heritage Foundation was influential in the Trump transition team. Since the group holds President Trump’s ear, reports like the one that advise him to “not be taken in by hyperbolic rhetoric about the state of the nation’s infrastructure or lured by false promises of stimulus-induced job creation” may prove influential in the long term.

The Trump campaign has led to a Trump Administration that is filled with contradictions. Trump’s promises of spending, some made as recently as last week, conflict with his appointment of fiscal conservatives like Mulvaney. Other appointees, such as Steven Mnuchin, seem to be more squishy on deficit spending.

Will Trump follow his advisors or his instincts? Will Republicans back him if Trump follows his liberal inclinations on spending? Stay tuned and find out.

Just a Quick Reminder: Our Debt is Yuuuuuge

With all of the attention given to the presidential elections, it’s easy to forget that the U.S. just ended the 2016 fiscal year. This means it’s time for the annual examination of how much more debt we have!

According to the newest Treasury Department figures (H/T to The Washington Examiner and CNS News), total U.S. debt held by the federal government was $19.573 trillion on October 1. That’s an astronomical amount of debt, quite a bit larger than our current Gross National Product.

As the Examiner and CNS pointed out, and the Treasury numbers confirmed, U.S. debt technically jumped more than $1.4 trillion in the last 12 months. That’s thanks to the Treasury Department temporarily not taking on more debt via use of “extraordinary measures.” Those measures staved off a debt increase from March 2015 through early November — and then the debt jumped hundreds of billions of dollars within a month.

Looking at the Fiscal Year 2016 debt in context to our larger debt picture, the Congressional Budget Office (CBO) projected in August that the annual deficit would be about $540 billion. That’s larger than immediate prior years, but lower than what we’ll see over the next decade. (The deficit and an increase in the national debt are two different things, thanks to how the federal government does its accounting.)

Contrary to liberal tripe about the feds needing more taxes, CBO projects that government revenues via taxes, fees, etc. will rise over the next decade as a percentage of GDP and continue to be above the 50-year average. The real culprit for our growing debt, spending, will go up even more — well beyond the 50-year norm — putting the U.S. at an even worse fiscal position than we’re at now. CBO projects we will add nearly $8.6 trillion to our debt by 2026.

But even this scary scenario, which would likely impact our economy’s growth, doesn’t tally up the worst of it all. The big-picture analysis most often cited by media outlets is the “baseline” projection by CBO — the optimistic one. In the August projections, CBO gave a list of alternative fiscal scenarios that could play out, depending on the decisions politicians make. A quick tally of those scenarios shows that the debt could be as much as $2.755 trillion higher than the positive projections, or $792 billion lower.

Short version: We don’t need more taxation. We need more economic growth and less spending. However, neither party wants to effectively reform the entitlements (Medicaid, Medicare, Social Security, food stamps, and other parts of the budget that don’t get annually approved by Congress) that are the major cause of our budget increases in recent years, and are projected to, for the most part, rise in cost. And effective tax reform is nowhere to be seen.