President Trump’s budget, first and foremost, is a messaging document. Take it from White House budget director Mick Mulvaney, who in a Monday briefing told reporters, “This is a messaging document.” But there is some truth in advertising. The administration’s spending blueprint finally acknowledges what every mainstream economist insisted last year over the Trump team’s objections: The $1.5 trillion tax cuts won’t pay for themselves.
The top lines help tell the story. The White House predicts stronger economic growth, kicking in sooner, than it did in the 2018 budget. At about 3 percent annually, that growth is far more robust than most economists expect — and with milder inflation than forecasters predict and even lower borrowing costs than the administration projected last year.
Yet where last year’s document projected a $16 billion budget surplus in a decade, the 2019 version sees the government running a $450 billion deficit in 2027. That’s a pretty stunning reversal.
And the White House seems to be conceding the GOP tax-cut package accounts for both the revved-up growth and the gusher of revenue draining federal coffers. The recent spending deal, which would even further exacerbate the deficit, wasn’t incorporated into the new budget.
Mulvaney still maintains that the tax cuts “generate additional saving, additional revenue to the Treasury than we’d have without it.” As Politico points out, he chalks up the lost revenue to “technical corrections, the fact that the budget assumes that the individual tax cuts set to expire in eight years will be extended and ‘how the Treasury scores, believe it or not, the Obamacare repeal portion of the tax bill.’”
The new budget “forecasts that tax revenue will plummet in the next few years and never recover to the levels forecast before the tax plan was enacted in December,” The Washington Post’s Damian Paletta and Erica Werner write. “It projects that tax receipts will be $314 billion lower in 2018 than it forecast last year and almost $400 billion lower in 2019. The White House even projects that tax receipts will be $200 billion lower in 2027 than forecast last year, even though it had promised that the plan would fully pay for itself by then.”
So much for the metaphysics of dynamic growth. The Trump team late last year argued the tax package would unleash so much economic activity that the Treasury wouldn’t notice a permanent, 40 percent reduction in the corporate rate (the real reduction turned out to be 14 percent). The contention didn’t survive the winter.
Another question is whether anyone cares. On a day when the White House projected the deficit next year will double what it anticipated last year, the 10-year Treasury yield touched a four-year high before retreating slightly. But the federal government’s borrowing costs remain historically low.
And if stock market investors are jittery that higher deficits will prompt price-crimping interest rate hikes, they didn’t show it on Monday. The Dow Jones industrial average climbed 410 points, or 1.7 percent, as both it and the S&P 500 notched their biggest two-day gains in percentage terms since June 2016.
Voters seem similarly unperturbed by the gathering deficit clouds. Back in 2013, the share of Americans naming deficit reduction as a top priority — 72 percent — was at a two-decade high, according to the Pew Research Center. Now, just 48 percent call it a leading concern. As my colleague Paul Kane noted over the weekend, that’s not enough to crack voters’ top 10 list.
Paul cites a recent Republican polling memo pointing out that by 59 to 18 percent, voters prefer to measure the economy by personal metrics — “income, wages and cost of living” — rather than general ones: “growth rate, inflation, interest rates.” That bodes well for Republicans who are likewise focused on juicing immediate-term results even as longer-term costs come into view.
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— Stocks still aren’t cheap. CNBC’s Jeff Cox: “The stock correction, while dramatic, hasn’t really done a whole lot to make the market look more affordable. In fact, valuations remain high by historical standards when looking over five- and 10-year periods. Normally, investors will go bargain-hunting when the market saw as sharp a dive as it has during February, but low-priced sectors are still hard to find. As a group, the S&P 500 has fallen from trading at more than 18 times forward earnings to 16.3 times as of Friday. While that gets the index closer to its normal level, that still is a shade above the five-year average of 16 and considerably above the 10-year standard of 14.3, according to FactSet. Looking inside the index, six of the 10 sectors are trading below the five-year average, with energy the only one meaningfully under, while only one is below the 10-year norm.”
But this stock picker says buy now. Bloomberg’s Kristine Owram: “The Morgan Stanley strategist who predicted volatility would ramp up in 2018 says the damage has been done and it’s time to buy stocks. Michael Wilson, the firm’s chief U.S. equity strategist, said the ‘volatility shock’ that hit equity markets last week has pushed valuations down to attractive levels, with the S&P 500 Index trading at just 16 times forward 12-month earnings per share. This is a “level we believe is too cheap” given that 10-year Treasury yields remain below 3 percent, Wilson said in a note to clients Monday. Wilson’s recommendation to be a disciplined buyer of stocks at these levels contrasts with his call from a week ago, when he said there was ‘no rush to buy this dip.'”
— Plan shifts burden to state and private money. NYT’s Patricia Cohen and Alan Rappeport: “Trump’s $200 billion plan to rebuild America upends the criteria that have long been used to pick ambitious federal projects, putting little emphasis on how much an infrastructure proposal benefits the public and more on finding private investors and other outside sources of money. Unveiled on Monday, the infrastructure program that Mr. Trump has championed since the campaign is intended to attract a huge amount of additional money from states, localities and private investors. The goal is to generate a total pot of $1.5 trillion to upgrade the country’s highways, airports and railroads. Those financial priorities are crystallized in the new guidelines established by the White House. The ability to find sources of funding outside the federal government will be the most important yardstick, accounting for 70 percent of the formula for choosing infrastructure projects. How “the project will spur economic and social returns on investment” ranks at the bottom, at just 5 percent.”
Blue states get stiffed. Politico’s Dana Rubinstein and Ryan Hutchins: “Major transportation projects in blue states may be in jeopardy in… Trump’s 10-year infrastructure plan, which critics say favors little-populated rural areas to the detriment of urban America. The White House isn’t being coy about where its priorities lie in the $1.5 trillion proposal, released Monday: Of the $200 billion in actual federal investment called for in the 10-year plan, one-quarter would go to rural areas for purposes as diverse as sewers, highways, airports and broadband. But only 14 percent of people in the U.S. live in non-metropolitan areas.”
Dems say Trump wants to cuts more than he spends. The Post’s John Wagner: “Besides unveiling his infrastructure plan, Trump also released his 2019 budget blueprint Monday. Combing through it, the office of Senate Minority Leader Charles E. Schumer (D-N.Y.) identified more than $240 billion in proposed cuts over the coming decade to an array of existing infrastructure programs — a higher number than what Trump is proposing in ‘new’ spending.”
Privatizing airports and roads. The Post’s Michael Laris: The administration “is pushing federal officials to sell off, privatize or otherwise dispose of a broad array of government assets, from Reagan National Airport and the George Washington Memorial Parkway along the Potomac River to properties held by federal agencies across the country.”
Trump weighed in this morning:
Our infrastructure plan has been put forward and has received great reviews by everyone except, of course, the Democrats. After many years we have taken care of our Military, now we have to fix our roads, bridges, tunnels, airports and more. Bipartisan, make deal Dems?
— Donald J. Trump (@realDonaldTrump) February 13, 2018
— Treasury seeks to ramp up counter-terrorism. WSJ’s Samuel Rubenfeld: The department “wants a 30% boost in funding for its counter-terrorism office, a reflection of the increased use over the years of financial tools to address national-security threats. The $159 million request, part of the Trump administration’s budget plan for the 2019 fiscal year, follows years of flat funding for the Office of Terrorism and Financial Intelligence, known as TFI. As part of the requested increase in funding, the office also seeks nearly 100 additional employees, a 21% jump. The office’s role in protecting U.S. national security ‘has grown dramatically’ over the last several years, according to a Treasury Department budget request document. In addition to its counter-terrorism efforts, it also administers and enforces U.S. sanctions programs, and protects the U.S. and international financial systems from abuse.”
Dodd-Frank watchdog cut. NYT: Treasury “calls for continuing to cut the budget of the Office of Financial Research, which was set up in the wake of the financial crisis to help federal agencies stay ahead of financial risks. The office, which provides analysis and research to the Financial Stability Oversight Council, has previously been targeted for both funding and personnel cuts. ‘The Budget reflects continued reductions in O.F.R. spending commensurate with the renewed fiscal discipline being applied across the Federal Government.'”
— CFPB curbed. The Post’s Renae Merle reports the administration proposed a restructuring of the agency in its budget: “Under the proposal… the CFPB would be funded through Congress rather than the Federal Reserve, giving lawmakers more influence over the agency’s priorities. The CFPB’s 2019 budget would also be capped at its 2015 level, $485 million, compared with a projected $630 million this year. The plan, which would take two years to implement, also calls for putting restrictions on the CFPB’s enforcement authority.”
(The agency confirmed Monday it dropped a lawsuit against Golden Valley Lending, which was allegedly charging people up to 950 percent interest, CNBC’s Jacob Pramuk reports.)
SEC seeks cyber boost. Law360’s Tom Zanki: The agency “requested a $1.66 billion budget for fiscal 2019 that contains a 3.5 percent spending increase after three years of flat budgets, hoping to spend more money on cybersecurity and restore positions lost to hiring freezes. The SEC’s budget proposal represents a $56 million increase compared with its fiscal 2018 request of $1.602 billion, a level the agency said has remained essentially flat since fiscal 2016.”
The White House wants the CFTC to levy fees on derivatives users, “an idea that may be dead on arrival because of industry opposition,” per WSJ’s Gabriel T. Rubin: “Moreover, leaders at the CFTC also are opposed to the funding idea. The Trump administration’s fiscal year 2019 budget calls for keeping the CFTC’s budget appropriations flat at $250 million, but would add an additional $31.5 million in funding from a fee on some firms that participate in derivatives markets. The CFTC currently lacks the authority to collect such fees—unlike its larger market regulator counterpart, the Securities and Exchange Commission—and would require Congress to act to change its funding rules.”
(The SEC and CFTC requests earned a rare nod of approval for the Trump administration from the watchdog group Better Markets, which called them “an important recognition that the cops on the Wall Street beat don’t have the funding they need to do their jobs protecting the American people.”)
— Spending plans. Politico’s Sarah Ferris: “Alongside its original budget request, the Trump administration Monday also released the details of what it would recommend doing with the extra money for domestic programs included in Congress’ spending deal enacted last week. That includes an increase to the State Department, which the administration’s original document proposed to slash by 30 percent this coming fiscal year. The extra cash would go into the budget for the United Nations, humanitarian aid and global AIDS programs. Each of those efforts would have been cut under Trump’s original plan.”
— Cutting the safety net. The Post’s Tracy Jan and co.: “The budget… takes a hard whack at the poorest Americans, slashing billions of dollars from food stamps, public health insurance and federal housing vouchers, while trying to tilt the programs in more conservative directions. The spending plan reaches beyond the White House’s own power over the government social safety net and presumes lawmakers will overhaul long-standing entitlement programs for the poor in ways beyond what Congress so far has been willing to do. The changes call on lawmakers to eliminate the expansion of Medicaid under the Affordable Care Act and transform the rest of that program into a system of capped payments to states; convert food assistance into a hybrid of commodity deliveries and traditional cash benefits; and expand requirements that low-income people work to qualify for federal assistance.”
From Harvard professor Jason Furman, a former Obama administration economist:
For those of you interested in how the structural deficit in the United States compares to other advanced economies. pic.twitter.com/C9FRd60B1P
— Jason Furman (@jasonfurman) February 12, 2018
From The Post’s Erica Werner:
Hard to imagine Ryan responding this favorably to an Obama budget that failed to balance and projected rising deficits pic.twitter.com/zDkS0pvDAQ
— Erica Werner (@ericawerner) February 12, 2018
Bloomberg’s Steve Dennis:
The Department of Rosy Scenario is doing a lot of work in Trump’s budget.
— Steven Dennis (@StevenTDennis) February 13, 2018
— BAT redux. Politico’s Doug Palmer: “Trump on Monday said he wants to impose a “reciprocal tax” on imports from countries that have higher tariffs than the U.S. ‘We are going to charge countries outside of our country — countries that take advantage of the United States,’ Trump said at a White House meeting with state and local government officials about the administration’s infrastructure plan… Trump seemed to be complaining about the U.S.’ relatively low duty structure when compared with those of some other countries.”
It surprised his aides, “who warned that no formal plans have been prepared,” per WSJ’s Michael Bender.
— Deutsche Bank fined. Reuters’s Jonathan Stempel: “Deutsche Bank AG will pay nearly $4.5 million to settle U.S. Securities and Exchange Commission civil charges that it failed to police traders and salespeople who lied to customers about bond prices, the regulator said on Monday. The bank will repay more than $3.7 million to customers and pay a $750,000 fine in connection with the probe into commercial mortgage-backed securities prices from 2011 to 2015. Benjamin Solomon, 42, of Brooklyn, New York, who was global head of securitized products prior to being terminated in August 2015, will pay a $165,000 fine and accepted a 12-month suspension from the securities industry, the SEC said. Neither the bank nor Solomon admitted or denied wrongdoing.”
— Cohen’s firm faces #MeToo suit. NYT’s Jessive Silver-Greenberg and Matthew Goldstein: “A female executive at the investment firm run by Steven A. Cohen, the billionaire investor, said in a lawsuit that the company was a testosterone-fueled “boys’ club” in which men commented on women’s bodies, belittled their abilities and paid them less than their male peers. The lawsuit, filed in federal court Monday by a current employee of Mr. Cohen’s Point72 Asset Management, describes a toxic working environment for women. Those with years of experience were often referred to as “girls” or “sweethearts.” Some were excluded from meetings that were deemed for men only, the lawsuit said. The lawsuit offers a rare glimpse inside the $11 billion firm, which is run by one of Wall Street’s most fabled traders and is a huge source of business across the banking industry. Mr. Cohen, who is in the midst of trying to repair his tarnished public image and raise money from investors, is not accused of inappropriate behavior in the lawsuit.”
— Equifax hackers got even more info. AP: “The credit reporting company announced in September that the personal information of 145.5 million consumers had been compromised in a data breach. It originally said that the information accessed included names, Social Security numbers, birth dates, addresses and – in some cases – driver’s license numbers and credit card numbers. It also said some consumers’ credit card numbers were among the information exposed, as well as the personal information from thousands of dispute documents. However, Atlanta-based Equifax recently disclosed in a document submitted to the Senate Banking Committee, that a forensic investigation found criminals accessed other information from company records. According to the document, provided to The Associated Press by Sen. Elizabeth Warren’s office, that included tax identification numbers, email addresses and phone numbers. Finer details, such as the expiration dates for credit cards or issuing states for driver’s licenses, were also included in the list.”
— Goldman Sachs’s two-day “10,000 Small Businesses Summit” kicks off in Washington today. Bloomberg is live-streaming the proceedings here, and today’s program features Sens. Tim Scott (R-S.C.) and Chris Coons (D-Del.) from 9:30 a.m. – 10:15 a.m; House Majority Leader Kevin McCarthy (R-Calif.) from 10:15 a.m. – 10:30 a.m.; Commerce Secretary Wilbur Ross at 2:59 p.m; former NYC Mayor Michael Bloomberg at 3:35 p.m.; Govs. Gina Raimondo (D-R.I.) and Rick Snyder (R-Mich.) at 3:45 p.m.; Sen. Marco Rubio (R-Fla.) at 4:15 p.m.; Goldman CEO Lloyd Blankfein at 4:30 p.m.; and Berkshire Hathaway chief Warren Buffett at 5:40 p.m.
What did Trump propose cutting in his 2019 budget? Check out this great graphic from the Post staff:
- The Senate Budget Committee holds a hearing to examine the 2019 fiscal year budget request.
- The Peterson Institute for International Economics hosts an event on “Charting Europe’s Path Forward.”
- The Urban-Brookings Tax Policy Center holds an event on The Tax Cuts and Jobs Act of 2017.
- The Small Business Committee will hold a hearing on job creation and small businesses’ role in the economy on Wednesday.
- The House Science, Space and Technology Subcommittee on Oversight and Subcommittee on Research and Technology holds a hearing on bitcoin and blockchain technology on Wednesday.
- The Senate Commerce, Science and Transportation holds a hearing on various nominations for the Federal Trade Commission on Wednesday.
- The Senate Health, Education, Labor and Pensions Committee holds a hearing on the nomination of John F. Ring to be a member of the National Labor Relations Board on Wednesday.
- The Senate Small Business and Entrepreneurship Committee holds a hearing on the nominations of of David C. Tryon to be Chief Counsel for Advocacy of the Small Business Administration and Hannibal M. Ware to be Inspector General of the Small Business Administration on Wednesday.
- The American Enterprise Institute holds an event on the “bubble economy” on Wednesday.
- The Hudson Institute holds an event on the Trump administration’s global economic agenda on Wednesday.
- The Senate Finance Committee holds a hearing on the 2019 fiscal year budget request on Wednesday.
- CFTC chairman J. Christopher Giancarlo testifies before the Senate Agriculture, Nutrition and Forestry Committee on Thursday.
- The Senate Finance Committee holds a hearing on the proposed 2019 fiscal year budget on Thursday.
- The Economic Policy Institute holds a panel discussion on black women and the economy on Thursday.
- The American Enterprise Institute holds a “Conference on the Taxpayer Protection Housing Finance Plan” on Feb. 27.
A cartoon from the New Yorker:
President Trump said the decline in U.S. infrastructure and increase in the deficit was caused by “laziness” after World War II:
Fact Check: Has the U.S. spent $7 trillion in the Middle East?
Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Chuck Schumer (D-N.Y.) say they don’t personally dislike each other:
Supreme Court Justice Ruth Bader Ginsburg shares her own #MeToo moment: