Cokie and Steven V. Roberts: No economic fairy tales
By Cokie Roberts and Steven V. Roberts
President Donald Trump would never run his businesses the way he’s trying to run the U.S. economy.
His proposed tax cuts are based on the delusional assumption that they will trigger enough economic growth to pay for themselves. But there is simply no evidence to support that theory.
Douglas Holtz-Eakin, a respected Republican analyst, wrote in The Washington Post that “no serious economist would make such a claim.” Effective tax reform, he added, “must be built on realistic growth assumptions, not economic fairy tales.”
Trump built his fortune by dealing with concrete facts, not fantasies. Yet when it comes to tax policy, says economist Diane Swonk in the Post, he’s refusing to recognize “mathematical reality.”
Fortunately, his plans are meeting massive resistance from Republicans and Democrats alike. And the president is learning, quite painfully, how limited his powers really are when it comes to legislation.
In a remarkable interview with John Dickerson on CBS, Trump talked about his rough adjustment from the private to the public sphere: “I think the rules in Congress and, in particular, the rules in the Senate, are unbelievably archaic and slow-moving in many cases. In many cases you’re forced to make deals that are not the deal you’d make. You’d make a much different kind of deal. You’re forced into situations that you hate to be forced into.”
Leave aside the obvious point that those “archaic and slow-moving” rules were exactly what Republican leaders used for eight years to thwart many of Barack Obama’s initiatives. Trump is now realizing that the system was deliberately designed to be creaky and cumbersome, to require a careful examination of flawed proposals like his tax plan, to restrict a president’s authority and restrain his worst impulses.
Trump has already been forced to accept “a much different kind of deal” in order to avoid a government shutdown and finance federal services through the end of the fiscal year. Money for one of his most odious ideas, a wall along the Mexican border, was totally eliminated from the budget. Another egregious proposal, cutting funds for the National Institutes of Health, was turned into an increase by legislators from both parties who understand the value of investing in basic medical research.
Some Trumpians want to cut taxes as a way of starving government programs like NIH, but those “archaic” Senate rules give Democrats enough leverage to thwart such devious and destructive plans. “We can’t pass anything without them,” conceded Sen. John Cornyn of Texas, the second-ranking Republican.
The tax issue clearly illustrates why those checks and balances are such a valuable part of the American system. Look at the key elements of Trump’s proposal: Slash the corporate tax rate from 35 percent to 15 percent; lower levies for most individual payers; and eliminate the estate tax and the alternative minimum tax, which are both designed to capture revenue from wealthy individuals who avoid other tax liabilities.
Since details are sketchy, projections are imprecise, but the nonprofit Committee for a Responsible Budget estimated the plan would cost $5.5 trillion in lost income.
The president includes few suggestions for offsetting these losses with revenue raisers. His major proposal — eliminating deductions for state and local taxes — is so fiercely opposed by lawmakers from high-tax states like New York and California that it stands little chance of passing.
“The Trump administration argues that the plan will generate much faster economic growth that will offset much of the cost of the plan,” says the Responsible Budget panel. “However, economic studies across the spectrum have found that deficit-financed tax cuts only pay for a fraction of their cost.”
“Tax cuts are a good idea — they help growth — but only if they’re paid for,” adds economist Mark Zandi in the Post. “The proposal the president put forward … would blow a big hole in the budget, and that won’t help the economy.”
Here’s why: When tax cuts “blow a big hole in the budget” and are not paid for through other policies, the government has to borrow more money to pay its bills. That puts upward pressure on interest rates, which in turn suffocates growth.
Trump has a penchant for demeaning and dismissing authorities who contradict his worldview: federal judges, political journalists, climate scientists. Now he’s headed for a clash with all those economists who say his tax plan is a “fairy tale.”
But no matter how much he huffs and he puffs, he won’t be able to blow their house down. And in business, he wouldn’t dare to try.
Steve and Cokie Roberts can be contacted by email at firstname.lastname@example.org.