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Commentary: Don't believe Trump’s tax and spending plans

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Latest MoneyWatch headlines 01:03


Donald Trump’s new tax plan will increase the national debt between $4.4 trillion and $5.9 trillion over a decade, and that’s according to estimates from the conservative Tax Foundation. That range of $1.5 trillion is due to uncertainty about how Trump would levy some types of business taxes and how his tax cuts would be paid for.

First, the Republican candidate says, higher economic growth from lower taxes and deregulation will pay for most of the increase in the debt. According to Trump, his plan will boost output substantially, and the higher tax revenue that comes with it will offset most of the lost revenue. 

Second, his “penny plan” would make up the rest of the revenue lost to his tax cuts. This plan would cut spending on nondefense programs funded by annual appropriations by 1 percent each year. 

Donald Trump on taxes 01:23

Since the cuts would affect only a part of the budget (defense and entitlement programs such as Medicare and Social Security are excluded), the plan would reduce spending on programs such as “veterans’ medical care…, scientific and medical research, border enforcement, education, child care, national parks, air traffic control, housing assistance for low-income families, and maintenance of harbors, dams, and waterways,” according to the Center on Budget and Policy Priorities. The total spending reduction would be approximately 25 percent over 10 years.

You should be skeptical of both claims.

The Trump campaign is promising U.S. economic growth rates of 3.5 percent to 4 percent from tax cuts and deregulation, which is much higher than the 2 percent rates of growth most forecasters expect. U.S. economic expansion rates have been slowing due to declining population growth and a long-term drop in the growth rate of productivity.

Raising productivity is a laudable goal, but the Reagan and Bush tax cuts and deregulation didn’t have a noticeable impact on productivity or economic growth, and there’s no reason to believe the outcome would be any different for Trump. 

His growth estimates -- and the revenue estimates that come with them -- are far too optimistic, and just as with Bush and Reagan, the impact on the national debt will be much larger than he would have you believe.

It’s also hard to imagine cuts of the magnitude that would be required under the penny plan, not to mention the additional reductions that will be needed if economic growth is lower than Trump promises. Cuts of that magnitude to the nondefense appropriations budget are very unlikely to happen.

If the Trump tax plan were to be enacted, it would not be paid for as the Trump campaign claims because the result would be be trillions in lost revenue. That will leave three choices: raise taxes (or don’t cut them to begin with); extend the spending cuts to defense, Social Security and Medicare; or accept the higher debt (as Republicans have done in the past when tax cuts didn’t produce the promised economic growth and tax revenue).

If Trump is president and Republicans control Congress, we can be sure that tax cuts will be a priority. Taxes may not fall as much as Trump is promising, but it’s safe to assume there would be a significant loss of revenue from the upper end of the income distribution and that the revenue would not be made up through economic growth and cuts to nondefense appropriations.

In such a case, does anyone doubt that Republicans in Congress would use the resulting increase in the national debt to argue that we must extend cuts to Social Security and Medicare (and spare defense)? Would Trump be willing to sign such legislation, perhaps in return for funding his wall along the U.S.-Mexican border?

Here’s one other factor to consider. If Trump starts a trade war, it could slow the U.S. economy even more than forecasters otherwise expect. That would lead to even lower tax revenue, an even greater demand for government services and an even larger budget deficit. In that case, it seems even more likely that Republicans in Congress would attempt to make large cuts to important social insurance programs.

But however they might resolve these problems, one thing is clear: Trump’s claim that he’ll pay for his tax reductions with economic growth, deregulation and cuts to nondefense appropriations should be viewed with more than a healthy degree of skepticism.

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