Top White House Adviser Wrong About the Deficit, According to White House Report
Trump adviser Larry Kudlow says the tax law will bring the deficit down. An administration report shows that's not right.
At the end of June, Larry Kudlow, a prominent conservative commentator who is now President Trump's chief economic adviser, claimed that, thanks to the GOP tax law, the deficit was already falling sharply.
"As the economy gears up, more people working, better jobs and careers, those revenues come rolling in and the deficit, which is the other criticism, is coming down, and it's coming down rapidly," Kudlow said. "Growth solves a lot of problems."
The problem with this statement was that there was no evidence whatsoever to support the argument that the tax law would bring down the deficit, or that the deficit was already dropping.
The Congressional Budget Office (CBO) estimated that the tax law would increase the deficit by more than $1 trillion over a decade (some independent analysts warned that the full effect could be even larger). In June the CBO reported that the current deficit was about $530 billion, nearly $100 billion more than at the same point in 2017. These figures, however, came from the CBO, which Republicans have long complained is insufficiently willing to account for the dynamic growth effects of tax cuts.
Kudlow later said that he didn't mean that the deficit had already come down, only that it would.
A recent report, however, contradicts that claim as well. And this time the figures come from the White House itself.
A budget proposal released last Friday projects a 2019 budget deficit of $1.08 trillion, an increase of about $100 billion from what the White House projected in February, and more double the $526 billion the administration estimated before that. The deficit is not coming down. It's not going to come down. It's going to rise.
Kudlow, however, was barely fazed. In an interview with CNBC this week, he allowed that "gigantic deficits are not good" but shrugged off the new figures. "We're going to run, as a share of GDP, we're going to run 4 or 5 percent," he said. "I've seen worse." The U.S. deficit has only exceeded 5 percent of GDP in times of extreme economic stress—following World War II and the recent financial crisis. Yet Kudlow described the tax cuts as a "good long-term investment" that would pay off over time. "The Trump tax cuts, yes, we will lose some revenues in the very short run," he said. "I believe we will get it back and more."
Kudlow may genuinely believe this, but if so, it is an article of faith, entirely unsupported by evidence. The best analysis finds that while dynamic effects, in which tax cuts boost growth and offset lost revenue, do exist, those effects are rarely large enough to fully or even mostly offset the lost revenue.
Moreover, tax cuts do not exist in a vacuum. Republicans followed the deficit-increasing tax bill by joining with Democrats to pass a deficit-increasing spending bill, which contributed to the White House's revised deficit estimate. Tax cuts did not pave the way for offsetting spending cuts or anything approaching fiscal restrain; they preceded a massive increase in federal spending.
Senior figures in the party have declared their intention to follow up with even more debt-and-deficit-increasing activity. The official deficit estimates for the tax bill were limited somewhat by the fact that all the individual tax breaks were set to expire after 2025. But Speaker of the House Paul Ryan, Rep. Kevin Brady of the tax-writing Ways and Means Committee, and White House senior adviser Kellyanne Conway have all indicated that they want to make those tax cuts permanent, which would massively increase the deficit.
Indeed, Kudlow himself raised that possibility this week, along with the potential for a series of further tax cuts: "You may see, frankly, not only a [tax cut] 2.0, but you may see a 3.0, and you may see a 4.0," he said in the CNBC interview.
The position of the senior economic adviser to the president appears to be that tax cuts are already lowering the deficit, which they aren't, or at least that they eventually will, an assertion which his own administration's estimates contradict, and that although rising deficits are bad news, the best course of action is of course to pass several more packages of tax cuts. This is Republican tax dogma at its worst, and it has found a perch at the highest level of government.
