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Deficits Under Trump Budget Even Bigger Than CBO Expected to Show

The Congressional Budget Office (CBO) analysis of President Trump’s 2018 budget, due out tomorrow, will likely show the budget reducing the deficit by considerably less than the $5.6 trillion over ten years that the Administration claims. That’s mainly because CBO likely won’t accept the Administration’s claim that its policies would generate enough added economic growth to reduce deficits by more than $2 trillion over the coming decade. CBO may also project lower savings from some of the President’s proposals, particularly those with scant details to support their savings estimates. But even CBO’s analysis will likely understate the budget’s impact on the deficit because it will omit the roughly $5 trillion ten-year cost of Trump’s current tax plan. With that cost included, the Trump budget would increase deficits over the decade, not reduce them.

CBO provides objective, non-partisan analysis of the budgetary effects of policy proposals. But CBO can only analyze specific proposals, not vague promises. In every year since at least the George H.W. Bush Administration, the Treasury Department has released a “Green Book” detailing every element of a President’s tax proposal. But under President Trump this year, the Treasury Department didn’t do so. Moreover, the tables in the Trump budget, such as this and this, provide no figures on the revenue impact of its tax proposals. In short, the Trump budget doesn’t show a tax plan, even though the President campaigned on huge tax cuts and continues to promise them.

For the Trump budget to show that it reaches balance by 2027, its tax plan must not lose revenues. Office of Management and Budget (OMB) Director Mick Mulvaney told the Senate Budget Committee on May 24 that the plan would be revenue neutral — that is, revenues over the next ten years would be the same with or without the plan. But the Administration hasn’t proposed tax policies — such as reducing or eliminating specific deductions and other tax preferences — that could plausibly offset the huge tax cuts it has proposed. Rather, we estimate that the President’s tax proposals would cost more than $5 trillion over ten years, based on estimates of those policies from the Tax Policy Center and the Committee for a Responsible Federal Budget.

Lacking sufficient details in the budget, CBO and the Joint Committee on Taxation can’t estimate the revenue effects of the tax plan — just as OMB and the Treasury Department did not try to estimate the effects of the President’s tax policies. As a result, the CBO analysis will appear to show that the President’s tax “proposals” have no impact on the budget’s bottom line, mirroring what the Trump budget claimed. But this doesn’t mean that CBO agrees with the budget’s claim — only that CBO can’t estimate that impact because the Administration hasn’t offered a specific plan, and certainly not in any official budget documents. Once these revenue losses (and the associated interest costs) are taken into account, the Trump budget wouldn’t shrink deficits; it would expand them.