Stockman: Expect Fiscal Calamity in Washington

[Ed. Note: To see exactly what this former Reagan insider has to say about Trump and the fiscal threats from the market facing a massive debt crisis, David Stockman is sending out a copy of his book Trumped! A Nation on the Brink of Ruin… And How to Bring It Back to any American willing to listen – before it is too late. Get your free copy CLICK HERE.]

David Stockman joined CNBC’s Futures Now to discuss the Trump fiscal tax policy and what to expect from leadership in Washington.

The interview started by asking about the Trump tax plan that was presented and what his read on the proposal. Stockman responded, “I think it is a wonderful fantasy. You could call it the Donald Trump candy store off of 1600 Pennsylvania Avenue. It is clearly dead before arrival (DBA) because there is no way to pay for the $7.5 trillion in cost of the main features. Which is double your standard deduction, including the three brackets, and then the reduction of business taxes that feature both corporate and noncorporate going down to 15% – which itself would cost nearly $4 trillion.”

David Stockman is the best-selling author of Trumped! A Nation on the Brink of Ruin… And How to Bring It Back. Stockman served as a two-term Congressman from Michigan and was also a member of President Ronald Reagan’s administration where he was the Director of the Office of Management and Budget.

“When Secretary Mnuchin said “no sweat” we’ll close some loopholes and get growth I think he was totally lacking in seriousness and credibility. On the loopholes, yes – there is $1.6 trillion allegedly of tax expenditures per year. When he brought up charitable contributions, we’re not touching that which is the equivalent of $50 billion, and would not touch mortgages either which is $60 billion.”

“I know Mnuchin’s not going to touch the healthcare exclusion which is $175 billion a year because that was included in the House “Obamacare repeal bill” and that did not even get out of the GOP caucus. There is $200 billion of loopholes for pensions, IRA’s, 401(k)’s and so forth. I know he’s not going after those dividends and capital gains that is the equivalent of $130 billion. He also did not say a word about state and local tax loopholes that are the equivalent of $70 billion a year. You can’t fund this bill with loopholes.”

“Frankly, there is more growth that is built into the Congressional Budget Office’s (CBO) baseline right now than can be achieved over the next decade even if you do have a tax cut. During the last ten years, nominal GDP grew at 3% a year and that is really what drives revenue and the budget. The CBO assumes it is going to grow at 35% higher, 4% over the next ten years. Mnuchin has even said that it was going to grow at 5% and nearly 70% higher. That’s just not going to happen and is not realistic. This is a fantasy.”

When the CNBC host immediately pressed in response that Stockman was not a fan of the bill he responded, “I like it, but you have to pay for it either with a new tax, like the border adjustment tax (BAT) or spending cuts, preferably, which Trump has ruled off the table. What you have down there is a total fiscal calamity that is going to basically dominate Washington like the shutdown that is coming. We’re going to be in a constant, fiscal crisis that deals with a debt ceiling and continuing resolution. None of these proposals that we’re hearing about is going to happen.”

The host asked Stockman to grade the Trump administration on its first 100 days he remarked, “It was like a “pop-up” store where they were trying to put up candy for the first 100 days to indicate they’ve accomplished something. This isn’t a serious plan. It can’t be done. I think it’s only indicative of the huge trouble that’s brewing in Washington beltway.”

David Stockman Fiscal Calamity

A separate CNBC guest asked whether the tax plan would have zero overall positive economic impact he responded, “No. What I am saying is that the baseline from the CBO baseline already has the growth effect, or the flowback, built-in. People don’t recognize that. In other words, to get to the baseline that the CBO has today for which we are deducting from the $7.5 trillion you’re going to need all of that growth and more. The problem is the baseline deficit over the next ten years, with current years, is already $10 trillion. Even if we do get flowback, which I am fully willing to recognize could be a couple of trillion, you’re still talking about $10 to $15 trillion of additional national debt. Congress can’t raise that.”

The CNBC host the prompted the former Reagan budget director on the Trump application of the Art of the Deal” negotiation Stockman urged, “I think the idea of lowering business taxes to 15% is a great idea but again I see no way that you can come up with the money to pay for it. If you then try to compromise to 20 or 25 percent, you’re not getting very far. Certainly, it’s not going to happen anytime this year. To the extent that tax cuts or reform happen in 2017, I think that is complete fantasy. I seriously doubt if they can muster the majority needed to get there even by 2018.”

When asked about the stock market faith in President Trump and what his reaction to the Trump rally he corrected, “I don’t know what the stock market is thinking. If they have faith in a giant fiscal stimulus and tax cut then it is a delusional faith that is going to be badly disappointed fairly soon.”

Attempting to ask for anything positive Stockman remarked, “I think the Congress is beginning to realize that we are deep in fiscal trouble. It is going to be a really tough road going forward. There is simply not going to be the kinds of stimulus policy that everybody believes… At least it is becoming clearer by the day that the system is broken big time.”

Catch the full interview with David Stockman covering the fiscal tax plan – CLICK HERE.

Thanks for reading,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning