Hours after Trump provided the broad framework, if few details, to his tax plan, conceived almost certainly by Goldman Sachs economists Alec Phillips and Jan Hatzius (and presented to the public by former Goldman employees Steven Mnuchin and Gary Cohn), the CRFB [Committee for a Responsible Federal Budget] calculated its impact on both the US budget deficit and future US debt. This is how the CRFB phrased it:
"Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it."
The administration doesn't think so.
Specifically, Pence acknowledged that the Trump administration's tax proposal could increase the deficit, at least at first. "Maybe in the short term," he said during an exclusive interview on NBC's "Meet The Press."
To be sure, Pence was confident that eventually the deficit would decline as it would be overcome by economic "growth" thanks to the tax cuts it will fund. However, even he hedged: “the truth is, if we don’t get this economy growing at 3 percent or more, as the president believes we can, we’re never going to meet the obligations that we’ve made today."…
Tax cuts are not spending. So it depends on how the increase in the "savings" of the private sector owing to reduced taxes is used. To the degree it is saved and not spent, the net effect on real growth will be nil. However, if that saving occurs in financial assets, those asset classes will greatly appreciate, creating an appearance of growth.
The shitty 0.7 GDP for 1Q (due to bearish govt reserve asset policy at banks for 1Q) will help Trump get thru some intransigent GOP deficit phobes.... they will want the growth more than they fear "the deficit!"....
ReplyDeleteIt will help as withholding instructions will immediately change upon passage... Trump. raising personal exemptions to 25k will result in about $150 extra per month for someone earning $25k....
Then the healthcare may add up to $14k annual per current uninsured household.... 4K per individual...
Then the Fed may also stay the course in light of this fiscal and keep raising rates or reduce assets if they are intimidated by Trump on the rates... both bullish....
Then we might have a decent 2017 after all....
When politicians adjust the deficit, it is almost never in response to the ECONOMIC needs of a country: it's in response to purely POLITICAL considerations, like Republicans' desire to cut public spending or politicians ignorance of the fact that increasing deficits and national debts during a recession does not matter.
ReplyDeleteI therefor like Bernanke’s suggestion that central banks should decide the size of the deficit, while politicians stick to strictly political decisions, like what % of GDP goes to public spending, and how that is split between defence, education and so on. See para starting “A possible arrangement…” here:
http://fortune.com/2016/04/12/bernanke-helicopter-money/
Ralph that's a terrible idea.
ReplyDeleteit just moves it to people who are not elected and cannot be held to account. Which would leave politicians getting paid for cutting ribbons at openings of new supermarkets.
They would just bring people in to the central bank that shared their ideology like they do when they pick supreme court judges.
The myth has to be destroyed and the only way it can be destroyed is by co -ordianted action. The Democratic party needs to be taken over by ordinary people in the same way the Republican party was taken over by the corporations and the tea party. So it can be done.
Then all you do is everytime the media wants to talk to a democratic party member all they say is some thing along these lines..
" I'm not talking to you unless you tell the truth about what the budget deficit actually is and that's everybody's savings" "So why are you always wanting to destroy peoples savings".
No matter what question they are asked and every member shuts up afer that and doesn't say another word.
How long do you think it would take before the myth is destroyed.
A week, a month, 3 months, 6 months ??
Imagine if that was the stance British Labour decided to take. Everyone of them on point.
How long could the British media ignore it without looking into the issue and reporting back to their viewers.
Hatzius! So that means Hatzius has explained Wynne Godley's sector balances to Steven Mnuchin and Gary Cohn, and no doubt this: http://www.businessinsider.com/goldmans-jan-hatzius-on-sectoral-balances-2012-12. Yay. (Btw, if no time to read the whole thing, read the Hatzius quotes.)
ReplyDeleteIn other words, Steven Mnuchin and Gary Cohn have received some MMT wisdom. Did you know that Wynne Godley was Stephanie Kelton's dissertation professor at Cambridge, and she followed him to the Levy Institute when Warren paid for him to relocate.
ReplyDeleteFiscal deficits are not a deterministic function of budgeting owing to non-discretionary factors that have already been determined legislatively but are variable over the cycle — taxes and automatic stabilization.
ReplyDeleteHatzius!
ReplyDeleteRight.
Who knew that MMT would be coming from the right.