So It Begins…….

Posted by on March 2, 2017 11:37 pm
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Mainstream financial media is beginning to pick up on the fact that President Trump’s economic plan is borderline insane. Something we have been saying here for months. For instance……Trump’s Speech Was Great, BUT…..

Others are beginning to see the same

The stratospheric cost of Trump’s economic plan

Here are the big programs Trump has proposed, with estimated costs and some handicapping on their odds of passing:

Tax reform. Trump called for “historic tax reform that will reduce the tax rate on our companies … and massive tax relief for the middle class.” There’s no formal plan yet, but the blueprint Trump unveiled as a candidate would reduce federal revenue by $7 trillion over 10 years, or $700 billion per year, according to the nonpartisan Tax Policy Center. The federal government takes in about $3.4 trillion in annual revenue, while spending about $4 trillion. So Trump’s plan would cut federal revenue by roughly 20%.

Budget hawks in Congress are exploring new sources of revenue to offset some of that cost, such as a tax on imports that could raise $100 billion per year. But some industry groups strongly oppose that, and Republican Sen. Lindsey Graham of South Carolina says a tax plan that includes an import tax “won’t get 10 votes in the Senate.”

Boost defense spending. Trump aides say they want to boost the defense budget by 10%, which would be $54 billion per year.

Infrastructure. Trump wants to spend a whopping $1 trillion on roads, bridges and other public projects over a decade, with some of that funded by private investors and some by taxpayers. Here’s the catch: Private funding only works for projects with tolls or other user fees that can generate a revenue stream, and many projects don’t fit the profile. Plus, it’s sometimes controversial when private investors profit from public assets such as roads. So it’s likely at least some infrastructure spending will have to come from taxpayer funds. We’ll lowball this figure at $25 billion per year.

Repeal and replace Obamacare. The Affordable Care Act, aka Obamacare, actually reduces federal deficits by at least $14 billion per year, partly through new taxes on high earners and some corporations. Trump doesn’t have a replacement plan yet, but if he repeals those taxes he’ll add to deficits by the same amount.

Border wall. Cost: At least $21 billion. Let’s spread that over four years and round down to $5 billion per year.

More spending on veterans, education vouchers for the poor and other things. Trump hasn’t detailed how much more he wants to spend, so these costs are unknown.

Those few tax cuts and spending hikes would add something like $800 billion to the national debt each year, on top of annual deficits of at least $500 billion that are already in the cards. So in the best case, the annual deficit if Trump got his way would be $1.3 trillion—close to the biggest deficit ever.

Trump wants to cut other types of federal spending to make room for his own priorities. But the following chart shows the problem with that:

Sources: Congressional Budget Office, Tax Policy Center

Trump has said he won’t cut Social Security or Medicare, while also talking about expanded Medicaid for the poor. And, of course, he wants to boost defense spending, not cut it. He can’t touch interest payments, either. That leaves the “non-defense discretionary” portion of the budget as the only pot Trump can tap, and that money—$561 billion in 2017—only accounts for 14% of federal spending.

“Trump could completely eliminate all programs in the non-defense pot of discretionary spending, and he’d still fall hundreds of billions of dollars short of paying for all the tax cuts he promised in the campaign,” Howard Gleckman of the Tax Policy Center wrote recently. “Trump will have little trouble convincing Congress to increase military spending. But he’ll have less success selling the kind of narrow but deep spending cuts he is signaling.”

 Trump could get some additional revenue if Congress passes a “tax holiday” that lets big companies like Apple and Microsoft bring home profits held overseas, taxed at a rate far below the regular 35% corporate rate. And obviously Trump still has time to come up with trade-offs and compromises that will allow him to get at least some of what he wants. The recent run-up in stock markets, however, suggests that investors are taking Trump at his word when he promises massive tax cuts, a huge infrastructure plan and stronger defense. A simple tally of the numbers shows those expectations may be far too optimistic.
The most important question now is……how long before the idiotic stock market figures all of this out.