The Trump administration’s budget hadn’t even been officially released on Tuesday morning before critics began highlighting what appear to be basic accounting errors in the blueprint for federal spending in 2018 and beyond. At a forum on the federal debt and deficit held in Washington, Treasury Secretary Steven Mnuchin defended the document as a sort of rough draft while promising that “ultimately the numbers will be completely transparent.”
The criticism, first leveled by former Treasury Secretary Lawrence H. Summers in a Washington Post op-ed early Tuesday morning, says the administration is double-counting the supposed benefits of the large tax cuts that it is proposing. Essentially, the administration is claiming that its tax cuts will be revenue-neutral because they will stimulate growth and lead to larger tax revenues.
“This is an elementary double count,” Summers writes. “You can’t use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not cost revenue. At least you cannot do so in a world of logic.”
He went on to describe the mistake as “the most egregious accounting error in a presidential budget in the nearly 40 years I have been tracking them” and one that would “justify failing a student in an introductory economics course.”
Tuesday morning, when Mnuchin took the stage at the Peter G. Peterson Foundation’s 2017 Fiscal Summit, CNBC editor John Harwood, pressed him on the apparent discrepancy. The Treasury Secretary was in an awkward position. He could either admit that the administration had made a huge elementary accounting mistake in its first fully articulated spending proposal, or he could try to explain the problem away. He chose the latter.
Mnuchin argued that in preparing the document, the administration knowingly left out the cost of the tax cuts because it would have been “premature” to include them.
“As you know, in the budget process, the president proposes a budget, there will be many changes to this budget made by Congress,” he said. “Congress holds the purse strings. We felt it was premature to put in any changes to the budget as a result of taxes since we’re not far enough along to estimate what that impact will be.”
In a room full of budget experts, Harwood didn’t even need to point out the obvious inconsistency: the budget claims $2 trillion in additional revenues from the tax cuts growth effects, which by Mnuchin’s logic should also have been too premature to count. But Mnuchin continued to defend the administration by claiming that the budget is only a preliminary effort.
“This is a preliminary document that will be refined as we go through a process with the Congress determining how money is spent and as we go through the process working with the House and the Senate on taxes.”
He promised that in the end, “the numbers will be completely transparent” and that as the document is scored by the Joint Tax Committee and other groups, “it will be a completely transparent process.”
It wasn’t the only awkward moment in the nearly 25-minute interview.
The Trump administration has been pressing for tax reform ever since taking office, and earlier this year, Mnuchin promised in an interview that when the process is concluded, a combination of lower tax rates and sharply limited deductions would result in no net change to the tax liability of wealthy Americans, but a substantial cut for the middle class.
Virtually every analysis of the proposals that the administration has floated so far, Harwood pointed out, result in huge gains for the wealthy and moderate to small benefits for most other Americans.
Mnuchin insisted that those estimates don’t reflect the administration’s final position on tax reform.
“What we’re doing now is working very closely with the House and the Senate,” he said. “Our objective is to come out with a unified plan that the House and Senate will support and that can be signed by the president. What I have said repeatedly is that the president’s objective is to create a middle-income tax cut...That’s our intent. I can’t pledge what the results will be since the results will be a combined effort with the administration, the House and the Senate.”
Harwood again asked if the object was a plan under which the wealthy paid the same amount before as they did afterward. Mnuchin would not commit, saying only that the “intent” of the administration is to lower middle-class taxes.
“We’ll see where it comes out,” he said. “Different people have different views.”
Mnuchin was also asked to reconcile President Trump’s repeated promises not to cut entitlements with a budget that would slash more than $600 billion from Medicaid over a decade.
“Why did the president break that promise, not to touch Medicaid?” Harwood asked. “And does that mean...that he’s also likely to break his promise on Social Security and Medicare.”
“The president has no intention of changing Social Security,” Mnuchin said. Noting that he is a trustee of the Social Security Trust Fund, Mnuchin said, “This is something Congress may look at, okay? But the president doesn’t want to change entitlements.”
Then why did he propose major cuts to Medicaid, Harwood asked.
“I think the Medicaid reductions and what’s gone on, what the president is trying to do is control health care costs.”
Harwood pressed one more time for an answer on Medicaid.
“I’m not going to comment on health care,” Mnuchin said. “The health care [bill] is going through the system. The tax plan is all about creating jobs and growth.”
With that, Harwood concluded the interview.
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