Trump Flip-Flops on Further Tax Cuts

Plus, the deficit will top $1 trillion next year, CBO says

Trump Flip-Flops on Further Tax Cuts

President Trump said Wednesday that he’s no longer looking to cut payroll taxes, reversing comments he made a day earlier when he indicated that he was considering those and other tax changes.

“I’m not looking at a tax cut now. We don’t need it. We have a strong economy,” Trump told reporters on the White House lawn Wednesday when asked if he would pursue a temporary payroll tax reduction.

The president also reversed himself on the possibility of lowering the capital gains tax by indexing gains to inflation. “I’m not looking to do indexing,” he said. “I think it will be perceived, if I do it, as somewhat elitist…I want tax cuts for the middle class, the workers.”

Trump on Tuesday had said he had been thinking about both tax cuts. “We’re looking at various tax reductions,” he told reporters at the White House. “But I’m looking at that all the time anyway.” He added that he had been “thinking about payroll taxes for a long time” and “would love to do something on capital gains.”

His position changed after his staff “briefed him on how widely his comments yesterday were picked up and how much speculation they set off,” CNBC’s Eamon Javers reported. “So the president went out to the South Lawn today determined to shut down the tax speculation frenzy.”

The bottom line: A senior administration official told The Wall Street Journal that none of the tax cuts the president mentioned Tuesday were under active consideration. “The president threw it out…but he was just throwing things out,” the official told the Journal of a potential payroll tax cut. And as The Washington Post’s Tory Newmyer details, Trump has a long history of tossing out economic ideas and abandoning them or failing to follow through. So this shouldn’t come as a surprise.

Deficit Will Balloon by $800 Billion More Than Previously Expected Over 10 Years: CBO

U.S. budget deficits are projected to grow by $809 billion more than previously expected over the next 10 years, primarily as a result of the two-year budget deal passed by Congress last month, the Congressional Budget Office estimated Wednesday.

As a result, the deficit is projected to top $1 trillion by next year, two years sooner than previously estimated. The annual deficit is expected to average $1.2 trillion a year between 2020 and 2029, or about 4.7% of gross domestic product, compared to the 4.3% average CBO projected in May and the 2.9% average over the past half century. And federal debt held by the public is expected to climb from 79% of GDP this year to reach 95% in 2029, three percentage points higher than projected in May, before the budget agreement.

“The nation’s fiscal outlook is challenging,” CBO Director Phillip Swagel said. “To put it on a sustainable course, lawmakers will have to make significant changes to tax and spending policies—making revenues larger than they would be under current law, reducing spending below projected amounts, or adopting some combination of those approaches.”

Spending on the rise: The deal reached by Congress and signed by President Trump raises discretionary spending by $320 billion over the next two years and ends an era of spending caps imposed under a 2011 law. Without those caps in place for 2021 and beyond, the CBO projections are required to assume that discretionary spending will continue to rise with inflation through the rest of the 10-year period covered by its estimates. The result is that the two-year budget deal costs $1.7 trillion over a decade, including $200 billion in additional interest costs. An emergency spending bill providing funding for disaster relief and border security this year adds another $255 billion to the 10-year total.

Revenues fail to keep pace: As The Washington Post’s Jeff Stein points out, CBO projected a few years ago that revenue would be roughly 18% of GDP in 2018 and 2019. Instead, even as the economy has grown, that figure is down to 16.5% in the wake of the GOP tax cuts passed in 2017.

Lower interest costs: The spending increases will be partially offset by changes CBO made to its economic forecast, including lower interest rates, that reduce previously projected costs by $1.1 trillion over the next decade.

The cost of Trump’s trade war: The CBO also said that higher trade barriers — including President Trump’s higher tariffs — are expected to put a small dent in the U.S. economy, making it about 0.3% smaller than it otherwise would have been by 2020.

Why it matters: The CBO report just confirms the budgetary impact of the spending deal. “The recent budget deal was a budget buster, and now we have further proof,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Both parties took an already unsustainable situation and made it much worse.” At the same time, with fears of an economic downturn intensifying, the new report “is likely to intensify concerns that the United States does not have enough fiscal space to stimulate the new economy to avoid a recession,” The Washington Post’s Stein says.

The American Public Has a Plan to Cut the Deficit: Higher Taxes

As evidenced by the CBO numbers above, lawmakers may be placing little importance on the rising deficit, but the American public apparently takes a different view. Writing at The Washington Post’s Monkey Cage, Steven Kull, the director of the Program for Public Consultation at the University of Maryland’s School of Public Policy, points out that a Politico-Harvard telephone poll conducted last December found that reducing the deficit was among the top three priorities Americans laid out for the new Congress.

To find out just how the public would handle the federal tax and spending decisions, Kull’s program conducted a survey of its own this past spring, giving 2,403 voters a chance to craft their own budget. The result: “Given options for changing discretionary spending and/or general revenue, majorities overall cut the deficit by $544 billion. Republicans cut it by $401 billion, while Democrats cut it by $663 billion.”

Taxes, taxes, taxes: Democrats and Republicans overlapped on $376 billion in deficit reduction measures, with voters in both parties agreeing to raise taxes on high earners. “Bipartisan majorities reversed the 2017 tax cuts for incomes over $200,000, generating $111 billion: That included 64 percent overall, 54 percent of Republicans and 74 percent of Democrats, with even larger percentages rolling back the tax cuts for higher incomes,” Kull says.

Three in five of those polled also decided to eliminate the lower tax rate on capital gains and dividends for those earning more than $200,000 — a change that generated another $122 billion. And three-quarters of poll respondents introduced an extra tax of at least 4% on incomes over $5 million, generating another $13 billion. The poll also found solid majorities would impose surtaxes on corporate profits above $100 million and a financial transactions tax on stock, bond and derivative trades. Sin taxes on alcohol and tobacco also proved popular.

Spending cuts, on the other hand, “played a relatively minor role,” Kull says. “The biggest target was defense spending — 56 percent of respondents cut the base defense budget by at least $42 billion, in addition to some other cuts to military spending, but 53 percent of Republicans cut it by $7 billion.”

You can try building your own budget here.

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