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.

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  1. This is Republican tax dogma at its worst, and it has found a perch at the highest level of government.

    What makes you believe that Kudlow is voicing independent analysis? He’s been in absolute sync with his boss’s talking points since the moment he took the job. Which is almost certainly why he was hired in the first place.

    1. Kudlow has always believed in supply side economics. That can’t be said for Trump

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    3. Phased, like with a phaser?

  2. The two things conservatives lie about the most are deficits and GDP. To listen to the Trumptards we are in some sort of GDP lift-off and deficits are declining. Neither is true.

    Thanks Suderman.

    1. Of course your last bar is a single quarter number. Shall we compare that to Barry’s first quarters? Using BEA chained 2009 dollars we find:

      2009Q1: -5.54% (annual rate)
      2010Q1: 1.73%
      2011Q1: -1.54%
      2012Q1: 2.65%
      2013Q1: 2.8%
      2014Q1: -0.92%
      2015Q1: 3.2%
      2016Q1: 0.58%

      Average: 0.3% annual rate

      And what do we have for 2017/18?
      2017Q1: 1.23%
      2018Q1: 1.98%

      Average: 1.6% or 5 times better than Barry’s average. In fact, Trump’s 1.98% beats Barry’s median 1.73% and the majority of his Q1’s.

      1. Figures dont lie, but liars sure can figure!!!

        My gramma used to say that.

      2. Lol.. yeah because 2009 was oh so comparable to 2017.

  3. Cut taxes and increase spending. The republican way.

    1. Raise taxes and increase spending. The libertarian way.

      1. Raise taxes, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending, project excess revenues, increase spending, raise taxes to cover increased spending. The democrat way.

  4. I am not going to shed a tear that the revenue is lower. Maybe stop spending so much?

    1. That money belongs to the government!

    2. Let’s start with eliminating micromanagement of abortion clinics, a large chunk of military spending, overreactive immigration restrictions, another chunk of military spending, and silly, faith-based abstinence programs.

      Then, pardon or commute every non-violent drug offender and empty all private prisons and plenty of public prisons.

      Authoritarians may object.

      1. Just as long as the welfare state isn’t touched. Socialism is the price we pay for civilization or something like that. Or was it zoos are the price we pay for socialism?

      2. Most of that doesn’t add up to anything substantive, other than you are a piece of shit Arty.

        The only way you can balance the budget in the short term is to cut entitlement spending.

        1. Most of that doesn’t add up to anything substantive

          It’s been estimated that his 2nd point and his final point would significantly cut two of the most costly government programs in existence. His 3rd point would directly result in a much smaller reduction in spending (“only” about $10B/yr), but virtually every economist who has studied the issue has suggested that the economic benefits of that move far outweigh the direct savings.

      3. That’s a great start, but why stop there?

    3. Well yes and no.

      If we didn’t have perpetual budget deficits, I would agree with you. It wouldn’t even be a close call.

      But since we do, lower taxes now can only mean higher taxes in the future. And the future taxpayers didn’t get a vote in that. Or even the benefits of said taxes.

      Is it right to lower taxes now, meaning more money for ourselves, if that necessarily means higher taxes in the future, on people who did not consent to it? I think that is a much murkier question.

      I am not certain myself what the “correct'” libertarian solution is for that.

      1. what have those future people done for me? why am I obligated to care about them when the people of the past didn’t gaf about us?

        fuck future-me and fuck past-me.

        1. I understand that sentiment, I just think it is a little too nihilistic from my point of view.

      2. At some point in the not too distant future, the massive debts (world-wide, not just in the US) will become untenable and governments won’t find enough buyers for their bonds. The economy will be strongly effected. This will cause them to raise tax rates, which will push the economy even further South. It is going to be a catastrophe. It will then become clear that majority of the debt will never be truly paid. Either there will be double or triple digit inflation, or debt holders will get shaved (or both).

        I don’t think it is stoppable any more. The current expanding deficits just move the date of the collapse closer. Eight plus decades of politicians from both parties (and the voters who elected them) are to blame, but whichever party is in office when the whole thing comes tumbling down will get the blame.

        1. I wouldn’t worry so much about the nominal tax increases. No doubt they are coming, but they will not be the real threat. The real threat is the stealth taxation that will occur due to ruinous levels of inflation.

          Thus has always been the way governments have dealt with the fiscal problems, and thus it will remain.

          1. Although, I would also add that, relatively speaking, he who defaults last, wins.

      3. If you want to do a favor for the future generations then you need to oppose the excessive spending not taxes. Spending drives the deficit not taxes increases or decreases. Frankly at this point we are probably mroe likely to help the future generations by starving the beast and driving it to self destruct under it’s own weight then to try and get substantive changes.

  5. President Donald Trump attacked the Federal Reserve on Thursday, saying he disagreed with the course taken by the central bank and its chairman, Jerome Powell, whom Trump nominated to the position last year.

    “I don’t necessarily agree with it,” Trump told CNBC about the Fed’s two rate hikes so far this year. “I’m not thrilled, because every time we go up, they want to raise rates again. But at the same time I’m letting them do what they feel is best.”

    Captain Numbnuts is “letting” the Fed raise rates for now.

    1. “Captain Numbnuts is “letting” the Fed raise rates for now.”

      Did you just suggest that the President controls the federal reserve bank?

      1. No.

        Captain Numbnuts actually said he controls The Fed.

        1. I don’t see that in the quote

          1. Now I see it.

            “I’m letting them do what they feel is best.”

          2. But at the same time I’m letting them do what they feel is best.”

  6. Tax collection is at record levels. The problem is spending not taxes.

    1. Yes. This use to be the libertarian position. But, now #resist is more important than #basicaccounting

      1. Suderman is a complete joke. In many ways, he is the worst of all the reason staff.

        1. in other words – LEAVE TEAM RED ALONE!

          1. Libertarians for federal revenue maximization!

            1. He is a classical liberal Micoragressor. Shreek loves all things classically liberal as long as the Democrats support it.

          2. No, Team Red has a lot of problems. One of them is that Team Blue is so much worse that much of the time we are forced to tolerate Team Red.

    2. The latest monthly budget report from the nonpartisan Congressional Budget Office finds that revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. That’s a 9% jump, even though the lower income tax withholding schedules went into effect in February.

      Gee, that kinda fucks up the Suderman narrative. Then again he seems to have the same mental capacity as buttplug.

    3. Tax collection is at record levels. The problem is spending not taxes.

      Of course. But if spending is immovable because the political class in charge believes it should be X and there’s no opposition to it — then what do you do about revenue? Taxation is the only thing the two American political parties are arguing over. They’ve already reached an (unfortunate) agreement on what the appropriate levels of spending are.

    4. If there is no deficit spending how will politicians get re-elected?
      Think of the poor politicians too!

  7. “Kudlow, however, was barely phased”

    Does this mean the phasers were set on stun? Or did they just graze him? Or was he phasing to a different reality in which Trumpanomics actually work?

    Or was he maybe barely fazed?

    1. I wouldn’t be fazed either.

      More revenue is the goal of scumbag politicians, which is why he’s trying to sell it to them from that angle, even though they have yet to materialize.

      The real goal of a pro-growth policy is to make quality of life better for the little people who do productive work for a living. More federal revenue doesn’t help them; why should they care?

    2. When Star Trek came on, I thought their ray guns were fazers because they fazed people. Still don’t understand how they’re supposed to “phase” people, makes much less sense, but I’m told that’s the spelling.

    3. Did anyone use a low yield photon torpedo?

  8. How about the classic:

    Fuck you, cut spending.

  9. When it comes to goober mint accounting the proof is nowhere and everywhere.

    Who fucking knows man?

    No one – it’s the battle of the statistics and this accounting method and that accounting method.

    I say, Relax, smoke a doobie and chill to Frankie

    Frankie says Relax.

  10. Relax.

    Deficits do not matter.

    Inflation matters. If inflation is constrained things are fine.

    And there is no strong link to spending and inflation anyway. So don’t worry about it.

    Here’s two links, one from the right at Forbes and one from the left at the Institute for New Economic Thinking



    Institute for New Economic Thinking

    The “debt” isn’t debt it’s a bunch of countries, businesses, and individuals essentially holding savings accounts. It is in no way damaging to anything.


    Also taxes paid at the federal level don’t fund anything. That money is just drained out of the economy never to be seen again.

    When the federal government wants to spend it sends instructions in some manner, check, phone call, via computer, or carrier pigeon (Tennessee only) to mark up the account of whomever or whatever business by X amount.

    They are not dipping into some pool of funds to do this. They don’t need to. They create the money at will.

    They can produce as much as needed, whenever it’s needed, for any purpose simply by instructing a bank, or other intermediary where an account might be located, to add X amount of credits to whatever account.

    1. Spend trillions on welfare and cut taxes to zero if deficits don’t matter.

      What could go wrong?

      1. What could go wrong?

        Not much. No inflation increase means no problems. So control inflation.

    2. So worry more about what is the money being spent on rather than the amounts. There’s a lot of things, and I get that for some of you it’s all the things, that government should not be doing. Focus on stopping this or that bad thing, like the drug war and other injustices perpetrated by federal law enforcement, like the assaults by various agencies on private property rights, like regulations that hinder or even destroy businesses like propping up dictators and tyrants etc.

    3. Richard, inflation can nkt be controlled without removing money from circulation. If the government prints money to cover deficits, then that excess must be removed or the value of the dollar drops – meaning, among other things, that your savings are reduced.

      So how is that removal done?

      1. Pretty much the way we’ve been doing it since 2009 – paying banks to hoard all those added zeros.

        But no, that won’t last forever, and when it ends lookout.

      2. If 2008/2009 is any indication, the cash is moved overseas [nation by nation in piecemeal fashion] by the Fed to create stealth inflation that avoids the radar of US economic analysis, while maintaining an appearance of a contraction at home to the average voter. It effectively washes back in oil trades/bond purchases at some point I suppose, but that’s another story. They do 3 card monte a little differently than folks are used to seeing in Harlem or whatever.

    4. I don’t understand. You start your post saying that we shouldn’t worry about anything as long as inflation is held in check. And then you end your post advocating for inflation.

  11. A report didn’t make a liar of Larry Kudlow.

    A boatload of cocaine, wrecked personal and professional lives, low-grade right-wing polemics, and personal desperation made a liar of Larry Kudlow.

  12. When somebody good advises the White House to promote tax cuts, can’t you STFU?

  13. Don’t forget tariffs are taxes, which increase costs two-fold. There is the revenues collected from us, not some foreign company nor foreign nation, plus the increased prices on domestic products. Trump has not cut taxes so much as shuffled tax burden. Some a shell game in current taxes, but mostly with increased spending a tax increase on future taxpayers.

  14. No, actually revenues do go up. That’s a historical fact.…

    Alas, spending also increases — so little effect on the deficit.

  15. All this is known and yet the market is doing all right. So, either of these is true. 1) Efficient Market hypothesis is wrong. Even with all the facts about big bad deficits and the market sticks its head in the sand and acts irrationally. But defecits are supposed to be super bad and will blow up the economy and thus, stocks should be over-valued. Or, 2) Deficits are not that bad. All that anti-deficit mania spewed by the right was just rhetoric they never really believed. The markets know this and are indeed efficient and rational.

    1. The deficit is higher now than it was a year ago and it will be higher a year from now than it is now. But the market will still be “all right”. For now, anyway. The market in Greece was “all right” for a long time too.

  16. This is beltway speak.

    It is true that tax cuts without proportional spending increases the deficit, but tax cuts also lead to additional revenue, so the net is that the deficit isn’t as large as it would be if the additional revenue wasn’t present, so therefore since it isn’t increasing as much as it could, it’s therefore decreasing.

    See how that works?

    1. Nope. If the additional revenue is less than the lost revenue due to the cuts, then the deficit will increase. Trump’s spokesmen’s claims have centered on the idea that the additional revenue will exceed the lost tax revenue, but historical precedent and most analyses indicate that’s unlikely. But we can hope!

  17. Why quibble over government prognostications? They invariably get it wrong [usually by a multiple], and I suspect the CBO is the worst of the bunch, and their perspective is what is likely regurgitated by some hack within the administration. Websters does not allow circular definitions, and we should reject this DC circle jerk pretending to be useful information.
    But we are distracted: the matter of what tax rate provides the best revenue while allowing growth was settled in the middle ages, and only Hong Kong seems to have paid attention. Who cares what CBO projections are? Better info has been gleaned from concert goers with head full of acid. A 17-19% tax is optimal, which also means… the progs are certifiably anti growth, and that means they hate the working man by default. A century of stupidity is enough; flat tax or Fair tax, it’s time to prohibit progressive tax rates, which effectively scraps our hideous code. If that needs an amendment, then let’s do it. The ‘make government more efficient’ argument declares victory after lopping just one head off the hydra, and… how’s that working for us?

  18. Peter, serious question. Did you ever call Obama a liar when you covered the Obamacare saga? I didn’t read every single article. I find suddenly ‘liar’ is ‘le mot du jour’ in the media.

    Just curious.

  19. There are 2 ways to reduce the impact of the Deficit.

    1. Pay down the Deficit
    2. Increase GDP so the Deficit is a smaller percentage of the GDP.

    Clearly Trump is doing the latter.

    1. This assumes two things:
      1) That the deficit remains the same and doesn’t grow at a greater rate than GDP.
      2) That GDP is the important measure here.

    2. Just one minor problem: the congressional method to increase GDP is to borrow more money [its quicker than raising taxes/safer for encumbents, which may or may not boost revenue as economic activity changes and capital shifts]. Federal spending gets counted as part of GDP, so we have a problem in that Ryan might see this as a green light for more spending [using borrowed money]. Now is a good time for a little review of the Marginal Productivity of Debt. Melchior Palyi is a good place to start, but time is up for this congress – they’re in campaign mode and phoning it in. As the private sector component of GDP continues to get swallowed up by the governments spending [at roughly twice the rate of inflation], we are in very poor shape indeed. I think we may go negative by 2025, but it will not be reported… unless/until government debt instruments implode on the world market in an event “nobody could see coming”.

  20. Flake publically rebuked Rand Paul’s statement that US has interfered in over 80 elections, based on a peer reviewed study. He said US only intervenes to “help people have elections”.
    In same mold, former CIA head Woolsey, as well as Clapper and Hayden, have said we only intervene when its for “their own good”
    The deep state and its political water carriers believe that America, in Jeb Bush’s words, is always a force for good in the world.
    Trump is causing massive cognitive dissonance resulting in gobs of self righteous verbal flatulence.
    physico-chemical characterization

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