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Brownstone Institute

Trump’s 19th-Century Solution to Fiscal Disaster

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From the Brownstone Institute

By David_StockmanDavid Stockman 

In the last weeks of the campaign, Donald Trump is slicing and dicing the Federal income tax nearly as fast as he served up fries at the McDonald’s drive-thru window last weekend. So far, he has proposed to extend the lower rates, family tax credits, and investment incentives of the 2017 Tax Act after they expire in 2025 and to also exempt tips, Social Security benefits, and overtime wages from the Federal income tax.

Those items alone would generate a revenue loss of $9 trillion over the next decade, but he has recently proposed to also exempt firefighters, police officers, military personnel, and veterans from the Federal income tax as well.

We estimate the latter would cost another $2.5 trillion in revenue loss over 10 years. As it happens, there are 370,000 firemen, 708,000 policemen, 2.86 million uniformed military personnel, and 18.0 million veterans in the US. These 22 million citizens have an estimated average income of $82,000 per year, which translates to about $60,000 each of AGI (adjusted gross income). At an average income tax rate of 14.7% these exclusions would generate $250 billion per year of reduced income tax payments.

In all, Trump has thus tossed out promises to cut income taxes by $11.5 trillion over the next 10-year budget window. In turn, these sweeping reductions would amount to upwards of 34% of CBO’s estimated baseline income tax revenue of $33.7 trillion over the period. Alas, even in the halcyon days of Reagan supply-side tax cutting no one really dreamed of eliminating fully one-third of the so-called crime of 1913 (the 16th Amendment which enabled the income tax).

10-Year Revenue Loss:

  • Extend the 2017 Trump tax cuts: $5.350 trillion.
  • Exempt overtime income: $2.000 trillion.
  • End Taxation of Social Security benefits: $1.300 trillion.
  • Exempt Tip income: $300 billion.
  • Exempt Income of Firemen, Policemen, Military and Veterans: $2.500 trillion.
  • Trump Total Revenue Loss: $11.500 trillion.
  • CBO Income Tax Baseline Revenue: $33.700 trillion.
  • Trump Revenue Loss As % of Baseline: 34%.

Then again, Trump may have something virtually epic in mind. To wit, scrapping the income tax entirely in favor of taxing consumption via levies on imported goods and merchandise.

“In the old days when we were smart, when we were a smart country, in the 1890s and all, this is when the country was relatively the richest it ever was. It had all tariffs. It didn’t have an income tax,” Trump said at a sit-down with voters in New York on Friday for Fox & Friends.

“Now we have income taxes, and we have people that are dying.”

The New York Times is deeply alarmed: “The former president has repeatedly praised a period in American history when there was no income tax, and the country relied on tariffs to fund the government.”

Actually, however, 19th-century America was even smarter than Trump realizes. In 1900 total Federal spending amounted to just 3.5% of GDP because back then America was still a peaceful republic and had no Warfare State or even significant standing army at all. And save for the most advanced precincts of Europe, the Welfare State hadn’t yet been invented, either.

So, yes, the so-called “revenue tariffs” of the 19th century did meet the income needs of the Federal government to the point of actually balancing the budget year after year between 1870 and 1900. Indeed, the actual annual surpluses were large enough to pay down most of the Civil War debt, to boot.

Today, of course, the Warfare State, Welfare State, and the Washington pork barrels account for 25% of GDP. So Trump may be directionally correct in wanting to tax consumption rather than income, but, as usual, he’s off by about seven orders of magnitude when it comes to the size of the Federal budget that needs to be financed.

Still, Trump has stepped up to the plate when it comes to a 21st-century version of the revenue tariff. He has pledged to impose a 20% universal tariff on all imports from all countries with a specific 60% rate for Chinese imports. Based on current US import levels of $3.5 trillion per year from worldwide sources and $450 billion from China, Trump’s tariffs would generate about $900 billion of receipts per annum.

To be sure, Trump’s claim that these giant tariffs would be paid for by Chinamen, Mexicans, and European socialists is just more of his standard baloney. Tariffs are paid for by consumers, but that’s actually the hidden virtue of the Tariff Man’s favorite word.

The truth is, government should be paid for via taxation on current citizens, not fobbed off in the form of giant debts on future citizens, born and unborn. So if we are going to have Big Government at 25% of GDP rather than a 19th-century government at 3.5% of GDP, and Trump is a Big Government Man if there ever was one, better that the burden be placed on consumption, not production, income, and investment.

After all, today the “makers” get hit good and hard by the current exceedingly lopsided income tax system. Thus, the top 1% pays 46% of income taxes, while the top 5% pays 66% and the top 10% pays 76% of all income taxes. On the other end, by contrast, the bottom 50% pays just 2.3% of individual income taxes, while 40% of all families pay no income tax at all.

In any event, the math works out such that the proposed Trumpian revenue tariffs would generate about $9 trillion over the next decade, or nearly 80% of the $11.5 trillion revenue loss from drastically shrinking the income tax coverage and collection rate. So that’s a big step in the direction of fiscal solvency rather than more UniParty free lunches.

To be sure, the proper redirection of Federal tax policy would be a national sales tax or VAT levy, which could be applied to both goods and services and to domestically produced output as well as to imports. Thus, a 5% VAT on the current $20 trillion per year of total PCE (personal consumption expenditures) would generate the equivalent of Trump’s revenue tariff, while a 15% levy on total PCE could replace both the Trump tariff and the remainder of the income tax entirely.

Notwithstanding its shortcomings, however, a revenue tariff is a long overdue start in the right direction. Trump’s bold stance in favor of taxing consumption rather than income and requiring all households to bear the cost of government, not just the small number of producers at the top of the economic ladder, is clearly superior to the status quo.

Still, this sweeping change in the composition and incidence of tax policy doesn’t really put the impending fiscal disaster to bed. Not by a long shot.

If you assume Trump’s big revenue tariffs and sweeping income tax cuts and that the other Federal payroll, corporate, and excise taxes remain the same, 10-year revenues compute to just $60 trillion versus built-in spending of $85 trillion per the CBO baseline. In short, even with a giant Trumpified version of the historical revenue tariff, Trump’s budget plan would still generate $25 trillion of red ink over the next decade.

10-Year Budget Outlook with Trump Tax Cuts and Tariffs, 2025 to 2034:

  • Individual income taxes with Trump cuts: $22.0 trillion.
  • Trump Revenue Tariffs: $9.0 trillion.
  • Existing Payroll Taxes: $20.9 trillion.
  • Existing Corporate Tax Ex-Trump Cut to 15% on Manufacturers: $4.6 trillion.
  • Other Existing Federal Receipts: $3.5 trillion.
  • Total Federal Revenue Under Trump Policy: $60.0 trillion.
  • CBO Baseline Federal Outlays: $85.0 trillion.
  • 10-Year Trump Deficit: $25.0 trillion.

To be sure, Trump has promised to turn Elon Musk loose on a crusade against government waste and inefficiency, and we say more power to him. If anyone has the courage and smarts to take on the Swamp, surely Elon Musk is at the top of the list.

Then again, Trump has promised to shield 82% of the budget from any cuts at all. That’s right. Elon could huff and puff and shrink the non-exempt programs and agencies by one-third and still leave deficits in excess of $20 trillion over the next decade.

10-year Cost Of Programs Trump Has Championed, Promised Not To Cut or Can’t Cut:

  • Social Security: $20.0 trillion.
  • Medicare: $16.0 trillion.
  • Federal Military and Civilian Retirement Pensions: $2.5 trillion.
  • Veterans’ programs: $3.0 trillion.
  • National Security Budget: $15.5 trillion.
  • Interest On the Public Debt: $13.0 trillion.
  • Total Exempt Programs: $70.0 trillion.
  • Exempt Programs As % of $85 trillion CBO Baseline: 82%.

In short, even with Trump’s full revenue tariffs and assuming Elon could actually slash 33% of the non-exempt budget without closing the Washington Monument, the bottom-line math leaves little to the imagination. Spending at $80 trillion would amount to 22.7% of GDP, while Trump’s tariff-heavy revenue package would generate $60 trillion of Federal receipts over the next decade, amounting to about 17.0% of GDP.

In turn, that would leave a structural deficit of nearly 6% of GDP as far as the eye can see. And that projection assumes no recession ever again and that interest on a public debt approaching $60 trillion by 2034 would average just 3.3% across the maturity spectrum.

We will take the unders on that proposition any day of the week and twice on Sunday. That is to say, CBO’s projection of $1.7 trillion of annual interest expense by 2034 is likely understated by several trillion. Per year.

In any event, the challenge of financing these giant deficits along with $900 billion per year of Trump tariffs would be considerable. The latter alone would amount to nearly 10% of annual US consumption of consumer goods and fixed investment goods.

So if the Fed were to “accommodate” these massive Trump tariffs by running the printing presses red-hot in an attempt to compensate for lost household purchasing power, it could well trigger a burst of inflation even more virulent than that of 2021-2024.

On the other hand, were it to adhere to the correct sound money solution and refuse to “accommodate” both the massive Trump deficits and the giant Trump tariffs, bond yields, and interest rates would soar, even as the Main Street economy contracted sharply in response to a one-time 10% increase in the general price level.

Financing massive budget deficits honestly in the bond pits rather than at the Fed’s printing presses would also unleash the mother of all meltdowns in today’s insanely inflated financial markets. Trump would therefore get his tariff and some substantial reshoring of industrial production, but also a hair-curling recession on Main Street and a Bronx Cheer from the canyons of Wall Street.

Unfortunately, that’s the price America would have to pay even under Trumpian economics to purge the destructive effects of decades of UniParty spend, borrow, and print policies.

Still, we can actually think of a decidedly worse scenario. To wit, perpetuation of the UniParty status quo, which is what we would get from the Washington ruling party that replaced a failing mind in the Oval Office with an empty one on the Democratic presidential ticket.

A version of this piece appeared on the author’s site.

Author

David_Stockman

David Stockman, Senior Scholar at Brownstone Institute, is the author of many books on politics, finance, and economics. He is a former congressman from Michigan, and the former Director of the Congressional Office of Management and Budget. He runs the subscription-based analytics site ContraCorner.

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Brownstone Institute

First Amendment Blues

Published on

From the Brownstone Institute

By Philip DaviesPhilip Davies 

You might think these are quite rare but not a bit of it; 13,200 of these were recorded in the last 12 months, and that’s around 36 a day, and they go on your record and sometimes mean you end up with no job. They also have new laws planned to control misinformation and disinformation, something not just confined to the UK. Similar laws are planned for Ireland, Australia, Canada, and the EU.

I’m envious. The US has something the UK doesn’t have, namely a First Amendment. Yes I know there are those who wish the US didn’t have it either, including, I understand, John Kerry and that woman who still thinks she beat Trump the first time around. Kerry kind of wishes that the First Amendment wasn’t quite so obstructive to his plans. But from where I stand, you should be thankful for it.

Not only does the UK not have a First Amendment, it doesn’t have a constitution either, and that makes for worrying times right now. Free speech has little currency with Gen Z and the way it looks, even less with the new UK Labour government. Even Elon Musk, who takes a surprising interest in our little country, has recently declared the UK a police state.

It’s not surprising. Take for instance the case of Alison Pearson, who had the police knocking on her door this Remembrance Sunday. They had come to warn her they were investigating a tweet she had posted a whole year ago which someone had complained about. They were investigating whether it constituted a Non-Crime Hate Incident or NCHI. Yes, you heard me right, a ‘non-crime’ hate incident and no, this is not something out of Orwell, it’s straight out of the College of Policing’s playbook.

If you haven’t heard of them, you can thank your First Amendment. In the UK you can get a police record for something you posted on X that someone else didn’t like and you haven’t even committed a crime. NCHIs are a way they have of getting around the law in the same way John Kerry would like to get around the First Amendment, except it’s real where I live.

Alison Pearson is a reporter for the Daily Telegraph, but that doesn’t mean she can write what she likes. When she asked the police what the tweet was which was objected to, she was told they couldn’t tell her that. When she asked who the complainant was, they said they couldn’t tell her that either. They added, that she shouldn’t call them a complainant, they were officially the victim. That’s what due process is like when you don’t have a First Amendment or a constitution. Victims of NCHI in the UK are decided without a trial or a defense. They asked, very politely, if Pearson would like to come voluntarily to the police station for a friendly interview. If she didn’t want to come voluntarily, they would put her on a wanted list and she would eventually be arrested. Nice choice.

It’s true that there has been a public ruckus over this particular case, but the police are unapologetic and have doubled down. Stung into action by unwanted publicity, they are now saying they have raised the matter from an NCHI to an actual crime investigation. Which means they think she can be arrested and put in prison for expressing her opinion on X. And of course they are right. In the UK that’s where we are right now. Pearson tried to point out the irony of two police officers turning up on her door to complain about her free speech on Remembrance Day of all days, when we recall the thousands who died to keep this a free country, but irony is lost on those who have no memory of what totalitarianism means.

The way things are looking I would say things can only get worse. The new Labour government has made it clear that it wants to beef up the reporting of NCHIs and make them an effective tool for clamping down on hurtful speech. You might think these are quite rare but not a bit of it; 13,200 of these were recorded in the last 12 months, and that’s around 36 a day, and they go on your record and sometimes mean you end up with no job. They also have new laws planned to control misinformation and disinformation, something not just confined to the UK. Similar laws are planned for Ireland, Australia, Canada, and the EU. Germany in particular is keen to remove all misinformation from the internet, I understand.

Whenever I see the word ‘misinformation’ these days I automatically translate it in my head to what it really means, which is ‘dissent.’ Western countries, former champions of free speech, the bedrock of liberty and individual choice, en masse it seems, now want to outlaw dissent. What is coordinating this attack on free expression, I don’t know, but it’s real and it’s upon us. We are slowly being intellectually suffocated into not expressing any opinion that others might find objectionable or that might contradict what the government said. If you had told me that would happen in my lifetime, I would have called you a liar.

I live in the UK, the home of the Bill of Rights and the Magna Carta, and the mother of parliamentary democracy. I was proud that we produced men like John Milton, John Stuart Mill, and Thomas Paine, that we understood the importance of the Areopagitica, the Rights of Man, and incorporated On Liberty into our social thinking. But those days seem long gone when police knock on your door to arrest you for an X post.

So I’m glad someone somewhere has a First Amendment even if we don’t. It may be your last defense in that republic of yours, if you can keep it.

Author

Philip Davies

Philip Davies is Visiting Fellow at Bournemouth University, UK. He gained a PhD in Quantum Mechanics at the University of London and has been an academic for over 30 years teaching Masters students how to think for themselves. He is now retired and has the luxury of thinking for himself. He fills in his spare time with a small YouTube channel where he interviews amazing academics and indulges in writing books and articles.

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Brownstone Institute

The Most Devastating Report So Far

Published on

From the Brownstone Institute

By Jay BhattacharyaJayanta Bhattacharya 

The House report on HHS Covid propaganda is devastating. The Biden administration spent almost $1 billion to push falsehoods about Covid vaccines, boosters, and masks on the American people. If a pharma company had run the campaign, it would have been fined out of existence.

HHS engaged a PR firm, the Fors Marsh Group (FMG), for the propaganda campaign. The main goal was to increase Covid vax uptake. The strategy: 1. Exaggerate Covid mortality risk 2. Downplay the fact that there was no good evidence that the Covid vax stops transmission.

The propaganda campaign extended beyond vax uptake and included exaggerating mask efficacy and pushing for social distancing and school closures.

Ultimately, since the messaging did not match reality, the campaign collapsed public trust in public health.

The PR firm (FMG) drew most of its faulty science from the CDC’s “guidance,” which ignored the FDA’s findings on the vaccine’s limitations, as well as scientific findings from other countries that contradicted CDC groupthink.

The report details the CDC’s mask flip-flopping through the years. It’s especially infuriating to recall the CDC’s weird, anti-scientific, anti-human focus on masking toddlers with cloth masks into 2022.

President Biden’s Covid advisor Ashish K. Jha waited until Dec. 2022 (right after leaving government service) to tell the country that “[t]here is no study in the world that shows that masks work that well.” What took him so long?

In 2021, former CDC director, Rochelle Walensky rewrote CDC guidance on social distancing at the behest of the national teachers’ union, guaranteeing that schools would remain closed to in-person learning for many months.

During this period, the PR firm FMG put out ads telling parents that schools would close unless kids masked up, stayed away from friends, and got Covid-vaccinated.

In March 2021, even as the CDC told the American people that the vaxxed did not need to mask, the PR firm ran ads saying that masks were still needed, even for the vaxxed. “It’s not time to ease up” we were told, in the absence of evidence any of that did any good.

In 2021, to support the Biden/Harris administration’s push for vax mandates, the PR firm pushed the false idea that the vax stopped Covid transmission. When people started getting “breakthrough” infections, public trust in public health collapsed.

Later, when the FDA approved the vax for 12 to 15-year-old kids, the PR firm told parents that schools could open in fall 2021 only if they got their kids vaccinated. These ads never mentioned side effects like myocarditis due to the vax.

HHS has scrubbed the propaganda ads from this era from its web pages. It’s easy to see why. They are embarrassing. They tell kids, in effect, that they should treat other kids like biohazards unless they are vaccinated.

When the Delta variant arrived, the PR firm doubled down on fear-mongering, masking, and social distancing.

In September 2021, CDC director Walensky overruled the agency’s external experts to recommend the booster to all adults rather than just the elderly. The director’s action was “highly unusual” and went beyond the FDA’s approval of the booster for only the elderly.

The PR campaign and the CDC persistently overestimated the mortality risk of Covid infection in kids to scare parents into vaccinating their children with the Covid vax.

In Aug. 2021, the military imposed its Covid vax mandate, leading to 8,300 servicemen being discharged. Since 2023, the DOD has been trying to get the discharged servicemen to reenlist. What harm has been done to American national security by the vax mandate?

The Biden/Harris administration imposed the OSHA, CMS, and military vax mandates, even though the CDC knew that the Delta variant evaded vaccine immunity. The PR campaign studiously avoided informing Americans about waning vaccine efficacy in the face of variants.

The propaganda campaign hired celebrities and influencers to “persuade” children to get the Covid vax.

I think if a celebrity is paid to advertise a faulty product, that celebrity should be partially liable if the product harms some people.

In the absence of evidence, the propaganda campaign ran ads telling parents that the vaccine would prevent their kids from getting Long Covid.

With the collapse in public trust in the CDC, parents have begun to question all CDC advice. Predictably, the HHS propaganda campaign has led to a decline in the uptake of routine childhood vaccines.

The report makes several recommendations, including formally defining the CDC’s core mission to focus on disease prevention, forcing HHS propaganda to abide by the FDA’s product labeling rules, and revamping the process of evaluating vaccine safety.

Probably the most important recommendation: HHS should never again adopt a policy of silencing dissenting scientists in an attempt to create an illusion of consensus in favor of CDC groupthink.

You can find a copy of the full House report here. The HHS must take its findings seriously if there is any hope for public health to regain public.

Author

Jay Bhattacharya

Dr. Jay Bhattacharya is a physician, epidemiologist and health economist. He is Professor at Stanford Medical School, a Research Associate at the National Bureau of Economics Research, a Senior Fellow at the Stanford Institute for Economic Policy Research, a Faculty Member at the Stanford Freeman Spogli Institute, and a Fellow at the Academy of Science and Freedom. His research focuses on the economics of health care around the world with a particular emphasis on the health and well-being of vulnerable populations. Co-Author of the Great Barrington Declaration.

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