No there is not a $2 TRILLION error in the budget
No, Trump's budget does not contain a $2 trillion 'math error'
By Dan Calabrese
For the past 18 hours or so, the mainstream media has joined online lefty sites with the seemingly big news that the 10-year Trump budget plan contains a $2 trillion “math error” that makes the premise of the entire thing totally laughable. What they’re telling you is that the White House counted the same positive numbers twice – once assuming that economic growth would render tax rate cuts revenue neutral, and then counting the same economic growth as the cause of an entirely different $2 trillion in new federal revenue.
Even if you can assume the tax cuts will spur economic growth causing an additional $200 billion in revenue, the left and the media claim, the White House screwed up by counting that revenue twice when in fact it is only going to happen once.
The media and the left are wrong. Or lying. Or both.
The crux of their mistake is their failure to understand why the White House believes the tax cuts will be revenue-neutral
The crux of their mistake is their failure to understand why the White House believes the tax cuts will be revenue-neutral. Resulting economic growth is not the reason for that assumption. Rather, it is the intention to couple the reduced rates with the elimination of exemptions and deductions in the tax code.
Think about it like this: If you make $100,000 and you pay a 35 percent rate, but you can deduct $20,000 from your taxable income, then you’re only paying 35 percent of $80,000, which comes out to $28,000. Now let’s say your tax rate is cut to 28 percent, but your deductions are eliminated. Now you’re paying 28 percent of $100,000. Your tax? Why, it’s $28,000, just as it was before.
The Trump tax cut proposal is designed to work like that. Now, you might wonder, if everyone is going to pay the same, then what’s the point? The point is that it’s unproductive to spend a lot of time and effort hiding income to avoid being taxed on it. Make as much income as possible taxable, but cut the rates, and you’ll spur people to direct their capital in more productive directions. That will result in economic growth.
The media and the left completely miss this. They think Trump is counting on faster economic growth to make the tax cuts revenue-neutral. In other words, they’re assuming the rate cuts are not accompanied by any change in exemptions or deductions, such that they will reduce revenue at the exact same rate as the rate cuts themselves. But that’s not true, because eliminating the exemptions and deductions results in more taxable income and thus higher revenues to offset the rate cuts. The media and the left totally miss this.
Why? Because they’re stupid. And dishonest.
OMB Director Mick Mulvaney tries to explain to New York Magazine, not that they’re listening:
Budget Director Mick Mulvaney told reporters that his plan assumes the Trump tax cuts would be revenue neutral — which is to say, for every dollar of lost revenue through lower rates, it would produce another dollar of higher revenue through reduced tax deductions or loopholes. And then the revenue-neutral plan would produce so much growth that overall revenue would rise:
“We stand by the numbers. We thought that the assumption that the tax reform would be deficit-neutral was the most reasonable of the three options that we had. We could either assume that our tax reform was deficit-neutral. We could assume it would reduce the deficit. We would assume it would add to the deficit. And given the fact that we’re this early in the process about dealing with tax reform, we thought that assuming that middle road was the best way to do it.”
An OMB official gave the same explanation to Politico’s Michael Grunwald: “A senior OMB official told me the double-counting accusations are wrong, because the budget assumes tax reform will be deficit-neutral without taking growth into account.”
New York Magazine goes on to completely dismiss the explanation, but at least they reported it. Most of the media who are wetting their pants over this “mistake” or “scam” aren’t even taking Mulvaney’s explanation into account, let alone understanding it.
Media are being dishonest with you when they claim Trump is double-counting the growth estimate in his budget projection
Now to be sure, the assumption of 3 percent growth or higher is a very optimistic scenario. If it happens, it will represent much better growth than we had at any point during the Obama years. But the whole point of cutting taxes and simplifying the code is to create a more positive environment to spur that kind of growth. So is the administration’s move to end Obama’s nonstop harassment of the business community via regulations, investigations, lawsuits and unionization campaigns.
There is no doubt in my mind that if the entire Trump agenda is implemented, we’ll get the growth envisioned in this budget plan. The question is whether Congress will pass the whole thing.
Either way, the media are being dishonest with you when they claim Trump is double-counting the growth estimate in his budget projection. He’s not. The elimination of exemptions and deductions is one factor. Expected economic growth is an entirely different factor. The fact that they’re still telling you this is a lie, a mistake or a scam shows that they either don’t understand the tax code, or don’t understand economics . . . or are simply liars.
Submitted May 25, 2017 at 09:50AM by timo1200
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