Now that Republicans are in control of the Executive and both Legislative houses, might it be time to address the budget deficit?
Perish the thought. Republicans cannot agree on How or Whether to Pay for Tax Cuts.
A fight is brewing among congressional Republicans over whether a planned tax overhaul should pay for itself.
The plan favored by House Speaker Paul Ryan (R., Wis.) and Senate Majority Leader Mitch McConnell (R., Ky.) aims to be revenue-neutral: Lowering taxes without increasing the deficit—though their math comes with some caveats.
But President Donald Trump hasn’t signed onto that budgetary straitjacket, and some lawmakers are sympathetic to the idea of dumping the revenue-neutral goal.
“Revenue neutrality shouldn’t necessarily be a constraint,” said Sen. Pat Toomey (R., Pa.) “The primary goal should be maximizing growth and thereby increasing the income for Pennsylvania families.”
Rohit Kumar, a former aide to Mr. McConnell who is now at PricewaterhouseCoopers LLP, said revenue neutrality is a useful organizing principle, but “requires some hard policy choices, and it may be that those hard policy choices are harder than undoing the constraint.”
The House hasn’t shown yet how its plan actually adds up, and lawmakers are having trouble building political consensus around the border-adjustment proposal, one of the biggest changes to produce revenue and offset the rate cuts.
Under that plan, companies wouldn’t be able to deduct the cost of imports from their revenue, while exports and other foreign sales would be made free of U.S. taxes. The proposal would operate like a tax on the trade deficit and raise about $1 trillion over a decade, but divides lawmakers and corporations.
If Republicans choose tax cuts that lose revenue in the long run, they will face the Senate’s Byrd Rule, which prevents deficits outside the budget scoring window without 60 votes.
To comply with that rule, they could keep structural changes as permanent law but set some tax rate cuts to expire or snap back to higher levels. They could lengthen the budget window to 15 or 20 years and see if that changes the estimates or lets them delay expiration dates further. They could also pair tax cuts with spending cuts.
Chucking the revenue constraint would make it even harder to get votes from Democrats.
Debt Ceiling Shenanigans
What a hoot!
All of a sudden the Democrats are worried about revenue.
And after eight years of preaching fiscal restraint, once even shutting down parts of government over debt ceiling limits, the Republicans want no part of fiscal cutbacks.
Where are the Republicans on the issue of a debt ceiling now that hey are in control? The answer is “hiding”, even though Automatic Debt Ceiling Hikes Expire March 16.
Treasury Secretary Steven Mnuchin said during his confirmation hearing that he supports increasing the debt limit, and Office of Management and Budget Director Mick Mulvaney said last month that the administration plans to use extraordinary measures as long as possible.
Tax Cut Won’t Pay for Itself
Forget the notion the tax cuts will pay for themselves. The Border Adjustment Tax (BAT), tariffs, and the trade war retaliations of our major trading partners will destroy jobs and slow growth.
I would be more optimistic if Congress would simply lower the corporate tax rate and be done with it, but that seems highly unlikely.
Fiscal Hawk Hypocrites
Meanwhile, the party in power always wants fiscal expansion. The fiscal hawk conservatives have proven to be nothing but a pack of hypocrites now that they are in power.
Mike “Mish” Shedlock
It’s always the same. Those who aren’t in power disagree with those in power no matter what. In the end, the debt ceiling will have to go up because the alternative is the government does nothing but pay entitlements and eventually they won’t even be able to cover that.
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There is NOTHING to worry about. We are Too Big To Fail.
Spend all we want without fear of repayment.
Deficits, budgetary or trade,
DO NOT MATTER.
I have been told on high authority.
Politicians proclaiming fiduciary responsibility are taken the same as when my wife compliments my appearance….I know it was meant to make me feel better with virtually no truth in it.
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Not my style but can’t argue that and living in a non-recourse state has certainly worked well for a lot of people.
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Yes, grasshopper or ant, but you know, you never see a grasshopper that looks like he is working. He is either eating or setting motionless, apparently reflecting upon the injustice of winter.
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That term , “Pay for tax cuts”. Always makes me laugh.
In my house, we can’t do that. We have to cut spending to balance the budget.
Another one that make me laugh is “Public Service”. What a joke.
I call it the ‘gravy train’.
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That’s because you are a USER of the currency. The Federal Govt. is the monopoly ISSUER of the currency, and as such can never be revenue constrained. Equating your finances to that of the Federal Govt. is a non starter. There is no comparison. The issuer of the currency can always afford anything for sale in USD. Fiscal deficits are not inherently evil and are in fact necessary if the non government sector wants to save. There is not a finite pile of money somewhere that requires tax cuts be “paid for”, that is not how the system functions.
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How long does the “system” last when the US dollar keeps rising because there is no alternative? When considering your response I hope you will take into account the amount of US debt held by foreigners.
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It makes zero difference who holds the debt. It is still USD denominated debt. As far as the dollar is concerned “strong” is a relative term. The dollar is still well below the peak seen back in 2001. As I recall back then there was all kinds of gnashing of teeth about the dollar being too strong. But as will happen with a free floating currency balances will revert to the mean. The over all trend of the dollar since 2001 has been weaker. I don’t know what the future holds, but if the “system” does collapse I doubt it will be as simple as blaming a strong dollar. Judging from the idiots parading in and out of DC we will probably nuke the world into oblivion anyway.
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Mish, whatever made you think there is a lick of difference between these people? Job One for all of them is getting elected and staying that way. Hard to do when they tell the folks back home it’s time to tighten their belts.
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“All of a sudden the Democrats are worried about revenue.”
…
Yeah … well … all that is left … is for the Fat La- … er, for Paul Krugman to chime in that deficits DO matter …
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Republicans must buy votes just like the democrats do. They are hypocrites.
Just like the democrats.
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Absolutely true. Also true that we, as individual citizens, must be willing to support cuts to our own entitlements if fiscal sanity is to ever be restored. Social security for otherwise healthy, working individuals? Gone.
Military retirements benefits? Going to be cut, and no more cost of living increases.
Medicare and prescription benefits must be cut.
Food stamps? Gone.
The fact that none of this will ever happen, combined with exponentially increasing debt, guarantees that government will hyperinflate the obligations and debt away.
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I’m okay with cutting everyone else’s entitlements. Won’t that help a bunch? Mine are such a tiny part of the overall problem so surely it shouldn’t matter.
The thing that has been lost in this discussion is that what were once considered entitlements were considered such because WE HAD ALREADY PAID FOR THEM.
Today entitlements are SOCIAL in nature, reparations and social justice type of thinking….paying for white privilege and our successes that obviously could have only taken place as a result of racism. It has now expanded well beyond race as it is ANYONE who feels cheated or left behind….no judgements upon THEIR failures, only the rest of society who, from imposed guilt, finds it necessary to pay retribution.
As the financial wreckage ensues, we find more and more “victims” and fewer and fewer guilty to pay. We shall see what our entitlements truly yield.
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keep myriad of bubbles inflated gonna take massive infusion of printed cash,1 or 2 trillion increase won’t cut it,trump gonna need at least 6-8 tril just to get through his 4 year tour of duty,Plus at least 2 trillion to attack and destroy the chicoms,donald chump will be the first 30 trillion dollar man,or 10 million 6 million dollar men
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“Forget the notion the tax cuts will pay for themselves.”
…
That proposition has been utter BS from the get go. “Supply side economics” just a means for the rich to stay rich. About a dozen years ago the CBO under Holtz-Eakin (mind you he was a Republican who had worked for Bush senior and when appointed to CBO Rs controlled both Houses) had a study on tax cuts paying for themselves. Ran 3 scenarios and the new taxable economic activity came nowhere close to covering the tax cut. Most favorable revenue wise a little over 20% of tax cut recovered. The least favorable < 10%
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They got QE until enough trading partners stop accepting treasuries to fill our trade deficit. We’re at a point where swapping currency for silver bullion looks a lot better for individuals than leaving most of it in demand accounts.
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“Revenue neutrality shouldn’t necessarily be a constraint,” said Sen. Pat Toomey (R., Pa.)”
When the rubber hits the road, neither political party has any intention of balancing the budget.
Bush’s biggest campaign finance fund was Medicare Part D. 700 billion dollars.
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Karl Rove – looking at 2004 electoral map – “we absolutely have to win Florida”.
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After all the fighting about the debt ceiling, up to and including a shutdown of the government as a two week vacation for some government employees, Boehner and Obama, threw off the debt ceiling shackles until March 2017, so spending could be ramped up for campaign finance season 2016. They are fine with being spendaholics, to get themselves re-elected, at our expense. The tax payers are a campaign slush fund.
All that hand waving over doubling the national debt (again), was theatrics.
Next doubling- 40 trillion.
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It IS important that our leaders at least LOOK like they care. What else can we justify our “Full faith and credit” upon if we don’t have at least that?
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Welcome to reality (“The fiscal hawk conservatives have proven to be nothing but a pack of hypocrites now that they are in power”). Maybe now you can internalize that Republican policy is primarily about tax cuts and tax policy that significantly shift wealth creation from work to capital and which is a significant reason why the rich are getting richer to the detriment of our free and democratic society.
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Why all the pessimism and gloom? Trump is our Messiah and He can do no wrong. He delivers us from our enemies. His word is law. He will lead us forever into the promised land. Trumphoria forever, reality be damned!
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The REAL deficit shenanagins is the fact that few understand what a federal deficit really is!
For starters it is an annual accounting of the difference between Tax “revenue” and government spending. It resets every year. The deficit is the excess of spending over tax and a surplus is an excess of taxes over spending. It’s not a deposit of money. It’s just not spent so there is no saving in a budget surplus. However since we have a book keeping system where it all adds to zero, an accounting identity, the missing spending has to be made up by the private sector. This then means the private sector is hampered in its endeavours by having less money available to it. Surpluses generally lead to recessions [e.g., the Clinton surpluses were followed by the Bush recession in 1993]
A budget deficit adds to the economy and promotes growth, so it’s a good thing.
What matters also is that tax revenue is a dud way of valuing the economy. It should be what the economy is worth in total, at “full” employment. The federal government can spend regardless of taxes. Taxes are just a cost to the economy. They fund nothing federally.
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I would really like to know 3 things to define the issue:
a) What is the limit to borrowing?
b) What happens when the limit is hit, if ever?
c) Will there be a warning in the markets first before any limit is reached and what will be that warning?
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there is no borrowing going on at all. That is not why Treasuries are issued. Why would the monopoly issuer of the currency have to borrow it from you? The limits to deficit spending are represented by the real capacity of the economy to absorb said spending. The Federal Govt does not need to issue treasuries at all as they do not need to fund spending. The issuance of treasuries serves a monetary function, not a fiscal one.
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Anyone correct me, but far as I know:
a) None. Technically it has to be a purposeful political choice or the use of the currency itself becoming rejected by the tax base.
b) If we are talking of the debt ceiling in the US
https://www.theatlantic.com/business/archive/2011/07/the-us-government-cannot-ever-run-out-of-money/242622/
gives one example, it is not hard to think of others ( e.g. legislative changes).
c) Maybe the warning will come from society. I expect if the meaning of a currency becomes ‘disconnected’ markets will become either erratic or they will be cushioned until they implode.
So GFC for example, that was not directly gov. debt but systemic banking risk that was then smoothed out by government.
https://dailyreckoning.com/central-bank-can-never-run-money/
Is one amongst many on MMT . The schematic is right but the theorists tend to miss on how fiat is introduced/its effect on the economy. Commonly it is said fiat is spent into the economy then taxed out, so proclaiming government funds activity. This is not true – government obliges use of fiat by claiming a tax in fiat on society ( or else). So people did not think ‘ oh look, a fiat, lets trade with that’, rather they had to present their accounts in fiat and get hold of fiat to pay the taxes due on them. Hence when government came along with fiat in hand it was ‘accepted’, and from that government could buy out the economy with money it created, could promise a share of true productivity as payment to those who worked or voted for it.
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As I’m reading on related here is a historical perspective :
Pre-Roman Iberia was populated by a mixture of fully ethnic palaeolithic people, ‘Ethiopians’ and a newer Celtic/Indo-European civilization that came to dominate most of the peninsula until the arrival of the Romans. There was Greek, Phoenician and Carthaginian influence also around the time. The Celts did not invade as we would understand the term today, rather there was a gradual expansion into the territory, some of the pre-existing culture of the time there also being well organized for the period.
“8. There is no reason why we should not regard the population of the Celtiberian castros as peasant communities (Wolf 1982) that based their subsistence strategies on agricultural and herding activities, with the family as the basic unit of production and consumption. In fact, peasant societies do not aim to maximize profits, but instead strive for a balance between consumption and labour. Hence, they tend to develop the greatest possible economic diversification and a subsistence strategy that is based on the exploitation of all the resources available: agriculture, livestock breeding, hunting, gathering, as well as mining activities and handicrafts (Ortega 1999). Archaeology has demonstrated how the emergence of Celtiberian cities did not imply the disappearance of the castro system. On the contrary, the system was integrated into the new state organisation, so that peasant communities saw themselves needing to produce surplus demanded by the urban aristocracy. This demand for surplus would later increase with the arrival of the Romans.”
From
https://www4.uwm.edu/celtic/ekeltoi/volumes/vol6/6_8/burillo_6_8.html
Gives a very succinct description of the restructuring that took/takes place with the emergence of a governing class, and could equally be applied to modern times. To counterbalance the effect of wealth appropriation we find that management of resources is improved, and that where social interaction is high, as in cities, evolution of technology and productive innovation shoots up (other studies). Obviously the equation strives for balance and often topples. So exactly where the modern world is at the current juncture…I would not know.
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What so they mean exports will be made tax free? Arent they already so? Im overseas and whenever i buy stuff from the us the sales tax is refunded once i show proof of shipping overseas
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Not to worry. The debt “ceiling” will be raised, and the Fed will print whatever congress spends. QE Forever,,,by whatever name you wish to call it.
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QE has nothing to do with “printing” money. QE just changed the composition of reserves in the banking system by exchanging cash for interest bearing assets. The overall reserve position remains the same. The manor in which QE was implemented, or if it should have been implemented at all can certainly be debated, but it did not result in a flood of newly printed dollars sloshing around the economy.
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Because the Fed pays them to park a good chunk back with the Fed.
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Other people’s money corrupts others absolutely.
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So if you cut the corporate tax what cuts will be made to offset this loss of revenue? The budget would need to be cut by $300 billion. Suppose you cut the discretionary budget which is $1.1 trillion where will the cuts occur?
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Both parties are owned by the banksters, which is why the establishment policies always sacrifices society to pay back the banksters. The EU has proven that austerity is a failure, at least for the people, but not the banks (short term). The reason CONgress never reigns in the money center banks is who would sell their debt/promises/lies? Maybe we should have term limits.
Paying for tax cuts is the most oxymoronic phrase imagimable. If you want to pay for tax cuts, why not stop paying interest and literally print it without an interest expense, which is over 50% of the accumulated debt? What happens when rates even revert to the mean? Keep increasing taxes, fees, and civil asset purchases? Why not just send cops door to door to collect fines for estimated future traffic violations you will commit over your lifetime? THE ESTABLISHMENT WILL NEVER STOP THEIR INSANITY, so stop digging and use their ouster to start filling the hole.
We must restructure the debt with haircuts and swaps, because it can NEVER be paid off. The people that are stupid enough to loan bankrupt govts money should suffer the consequences, not society. Govt’s always borrow without any intention of paying it off. If these fraudsters cared about the debt, why don’t they pass a balance budget Amendment tomorrow?
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While I share your frustration with the establishment, your post is just filled with inaccuracies about how the monetary system actually functions. All of the wailing about deficits and unfunded liabilities is just silly when you know what the deficit actually represents. If you are waiting for the system to collapse because a sovereign currency issuer runs out of money or people to lend to them you will be waiting awhile (see Japan). A balanced budget amendment at the federal level makes zero sense as the Federal govt is not revenue constrained. Do you have any idea the kind of economic devastation that would be caused by the federal govt not being able to deficit spend during recessions? Or for that manner at any point if the desire of the private sector is to save? There are plenty of cases around the world of imposed austerity, and the suffering it causes to the disadvantaged and the least among us able to bear it, to study if you’re interested. Do yourself a favor, learn how our modern fiat system functions, I’m not talking about abject theory, I’m talking about the actual mechanics of our current system. What happens when the govt issues debt? How does the Fed manage reserves? What is the deficit? How do the finances of a sovereign currency issuer relate to a currency user? The answers will set you free and enable you to direct your anger and frustration where it really belongs.
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It seems ages since the topic of our national budget has been front and center, and while budget issues are fast approaching serious discussions may again be pushed aside by various distractions. The increase in national debt from 3 trillion dollars in 1990 to 5.75 trillion dollars in 2000 garnered far more attention than the roughly 10 trillion dollar leap that occurred during the 8 years Obama was in office.
Not suffering from our failure to deal with what this massive problem has only reinforced the idea that far too much has been made as to the ramifications of our out of control budget. The budgets and spending plans to fund the government are very important in shaping the country’s future and should not be taken lightly. More on this subject in the article below.
http://brucewilds.blogspot.com/2017/03/budget-issues-approaching-very-fast-and.html
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It is the nature of government to grow. Even if you put staunch conservatives in charge, growth would continue. It is not the politicians fault. It is our fault. No one wants to give up entitlements. Obamacare actually curtailed medical care by making it so expensive with high deductibles and huge subsidies to insurance companies. The new plan will just be a replacement subsidy.
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