02/13/2018

Trump’s New Budget Plan Is A Fiscal Disaster

Marc Joffe, Reason

The federal government's fiscal outlook has been in decline since the Bush administration, and President Trump's new budget plan is another step in the wrong direction.

Trump's 2019 budget ramps up spending on the military and border security. Although the budget offers some ideas for domestic spending cuts, most of these won't see the light of day. In other words, it continues the long-term unwinding of the nation's fiscal discipline.

The newly released 2019 plan calls for $4.407 trillion* of expenditures while forecasting $3.422 trillion* in revenue, resulting in an anticipated deficit of just under $1 trillion. The budget forecasts a similar amount of red ink in 2020, followed by declining deficits—but never a budgetary balance—through the rest of the ten-year projection window.

Normally, it would be possible to benchmark White House forecasts against Congressional Budget Office (CBO) projections. Not this year.

In late January, CBO typically issues its own ten-year budget forecast. But that document has yet to appear, because CBO says it needs more time to calculate the impact of December's tax measure. CBO won't say when it expects the report to appear.

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In Search Of History

The Reagan Tax Cuts Worked

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

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