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.”

https://twitter.com/kasie/status/1081947628265443329

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.”

https://twitter.com/justinamash/status/1082010264642428929

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.

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

Trump Administration To Propose Balancing Budget

The complete proposed budget for Donald Trump’s first fiscal year will not be released until next week, but advance word is that the president will propose a plan to balance the federal budget within 10 years. The budget will reportedly ask for cuts in federal entitlement programs in conjunction with an overhaul of the tax and regulatory system.

The Wall Street Journal reports that the plan will not include cuts to the two largest drivers of future spending, Medicare and Social Security, but will ask for trillions of dollars in cuts to discretionary spending such as education, housing, environment programs and foreign aid as well as nondiscretionary spending in programs such as food stamps, Medicaid and federal employee-benefit programs.

The budget will also include budget increases that were announced in the budget blueprint released in March. One of the largest increases in funding would go to the military, which was slated for an additional $54 billion to be split between the Departments of Defense and Homeland Security. There is also likely to be additional infrastructure spending, a neestimatedement for paid parental leave and border security measures.

The Journal notes that the budget does not include the details of the tax reform, but is likely to estimate the Republican tax reform as revenue neutral. Rate cuts would be offset by the elimination of tax breaks so that a Congressional Budget Office estimate would show no loss of revenue.

Balancing the budget will require growth as well as spending cuts. “The way we balanced the budget in the 1990s is we had spending restraint and GDP growth caught up—government revenues caught up, as the GDP growth came in,” Office of Management and Budget Director Mick Mulvaney said. “That’s what we’re trying to get back to.”

White House estimates of growth are much more optimistic than CBO estimates. The White House estimates three percent growth by 2021 while the CBO forecasts a 1.9 percent growth rate. Economists polled by the Journal estimate growth at 2.3 percent if Mr. Trump’s policies are enacted.

Conflicts over the growth rate may make it hard for the Trump Administration to find support among budget hawks for its spending increases. “I am extremely pessimistic that you can show a balanced budget unless you’re going to make the mother of all ‘rosy scenario’ type assumptions,” said William Hoagland, a former Republican budget aide who is now senior vice president at the Bipartisan Policy Center.

The spending cuts are also certain to draw fire from Democrats. Expect much weeping, gnashing of teeth and rending of garments over the proposed slashing of funds for safety net programs. Some moderate Republicans are also likely to object, making it extremely unlikely that the full measure of the cuts will become law.

House Minority Whip Steny Hoyer (D-Md.) said as much on Thursday, claiming, “It is an ideological document, not a document that will ever be utilized.”

The budget is slated to be released next Tuesday, while President Trump is touring Europe and the Middle East. Given Mr. Trump’s problems over the past two weeks, that may increase Republican chances of getting the budget passed.

OMB Director: Trump Budget Rebuilds Military, Cuts Waste

A big concern for many conservatives has been President Trump’s promises of increased spending in many areas. Trump’s promises of more money for the military and infrastructure have many worried that the increased spending will explode the deficit. However, the director of the Office of Management and Budget pointed out in a new budget blueprint that Trump’s spending increases will be offset by cuts in other areas.

In the Washington Free Beacon, OMB Director Mick Mulvaney said, “This is the ‘America First’ budget. In fact, we wrote it using the president’s own words—we went through his speeches, articles that have been written about his policies, we talked to him, and we wanted to know what his policies were, and we turned those policies into numbers.”

A big winner in the first Trump budget is defense, which is slated for a $54 billion increase split between the Departments of Defense and Homeland Security. The Defense Department budget would be increased by nine percent and Homeland Security by seven percent.

“We’ve worked very closely with the Defense Department to make sure, a couple of things, that this funds their needs but does so in a responsible fashion in terms of what they can actually spend this year,” Mulvaney said. “The Defense Department has told us this is the amount of money they need and can spend effectively this year. We are not throwing money after a problem and claiming that we have fixed it.”

The budget also allocates $4.1 billion over two years for Mr. Trump’s border wall. The figures for the first two years include tests to determine the efficiency and safety of different types of barriers. Mulvaney noted that a 10-year cost projection would accompany the full budget when it is released in May.

Mulvaney pointed out that these spending increases would be offset by cuts in other parts of the budget. “You will see reductions exactly where you would expect it from a president who just ran on an ‘America First’ campaign,” Mulvaney said. “You’ll see reductions in many agencies as he tries to shrink the role of government, drive efficiencies, go after waste, duplicative programs, those types of things.”

“The president ran saying he would spend less money overseas and more money back home,” Mulvaney said. “So when you go to implement that policy you go to things like foreign aid, and those get reduced. If those had been in the Department of Education you’d see a dramatic decrease in education.”

In fact, the Department of Education’s budget was cut overall, but charter school funding and school choice programs saw an increase. Some of the other notable items in the budget blueprint include:

  • Cuts Homeland Security grants to local and state agencies
  • Raises TSA security fees for airline passengers
  • Eliminates funding for 49 National Historic Sites
  • Cuts funding to reimburse state and local governments for detaining illegal immigrants
  • Increases funding and lawyers for illegal immigrant removal
  • Eliminates climate change prevention programs
  • Reduces funding for UN peacekeeping
  • Privatizes the air traffic control system
  • Eliminates funding for many transportation projects
  • Cuts NASA budget by one percent

According to the Washington Post, the big losers in the new budget are the Environmental Protection Agency and the State Department, which lose almost a third of their budgets. The Department of Agriculture and the Labor Department also received cuts greater than 20 percent. Other departments on the chopping block with cuts of more than 10 percent included Health and Human Services, Commerce, Education, Housing and Urban Development, Transportation, and Interior.

The full budget will be released in May and will include more detail on the cuts and a 10-year projection for entitlement programs such as Social Security and Medicaid. Entitlement and safety net programs make up more than half of the federal budget according to the Center on Budget and Policy Priorities. The full budget is subject to approval and amendment by Congress.