It has been just over a week since President Trump sent his request for the federal budget to Congress — his first comprehensive statement on the economy since taking office. Now, his budget director is walking back a fundamental component of the president's plan.
“I wouldn't take what's in the budget as indicative of what our proposals are,” Office of Management and budget director Mick Mulvaney said in an interview with the Washington Examiner.
Mulvaney was referring to taxes, which Trump has made one of his chief priorities for improving the economy. In the budget published last week, the Trump administration seemed to propose combining reduced rates with fewer deductions and credits, implying no overall cut in taxes.
In the interview, however, Mulvaney said the White House still wants to cut taxes, regardless of what was assumed in the budget.
That clears up some of the confusion surrounding last week's budget. Since Trump promised repeatedly to reduce taxes as a candidate, the fact that that pledge was not included in the budget was a surprise.
Yet Mulvaney's reversal on a basic aspect of the president's economic policy as laid out in the budget also creates new questions. Why did the budget not include a tax cut? How exactly would the administration cut taxes while also delivering on the president's plan to balance the budget in 10 years? And how would a tax cut affect the overall economy?
The Washington Post emailed these questions and others to Mulvaney's agency Wednesday. The office did not respond.
So what is ‘indicative’?
The budget Trump sent to Congress last week assumed that the president's tax policies would not increase how much money the federal government borrows. That assumption implies that any cuts the president put forward would be balanced by other increases in revenue — for instance, by eliminating write-offs, breaks and loopholes to generate more money for the treasury.
In Wednesday's interview, Mulvaney said that the administration is considering proposals that would result in more borrowing. Doing so would allow the administration to cut taxes across the board, delivering on one of Trump's essential promises as a candidate.
More borrowing could also increase the federal deficit and add to the national debt, but Mulvaney said that was not a concern for the White House, as long as tax cuts stimulated the economy overall.
“Several folks in the White House have said they are interested in pushing a larger tax bill that would add to the deficit,” Mulvaney said.
“Deficits are not driving the discussion, at least in this White House, about the tax plan,” he said. “Growth is driving the discussion on the tax plan.”
Asked for details on the White House's tax policies, Mulvaney's office did not respond. In April, however, the administration released a one-page document stating the president's tax priorities, calling for reduced rates, especially on businesses and wealthy taxpayers.
Why this ‘assumption’?
Mulvaney said the fact that the president's budget did not account for a tax cut was an arbitrary decision that did not reflect on the administration's goals for taxes.
“We just made an assumption,” he said.
Every president's budget relies on assumptions — about how changes to federal programs will affect how much they cost, about how quickly the overall economy will grow and more. It is not clear, however, why the administration assumed that one of Trump's primary goals as president would not be achieved.
The administration could have made a different, equally arbitrary assumption. For instance, they could have assumed that Trump would reduce taxes overall by, say, $1.2 trillion. Indeed, that is exactly the approach the administration adopted on health care in the budget.
Without offering details, the budget includes the assumption that undoing the Affordable Care Act, also known as Obamacare, will save about $250 billion. The budget could have made a similar allowance for tax reform. Asked to explain why they did not do so, an OMB spokesman did not respond.
Why even bother?
Over the years, the president's budget has changed from an annual request that Congress would seriously consider to a political document that states the president's priorities but is generally ignored by lawmakers. These days, since the president's budget is proverbially dead on arrival in Congress anyway, there seems to be little point to the entire exercise — other than as an opportunity for the president to pitch the public on his ideas.
This budget, however, did not do so.
Cutting taxes was a promise that Trump made again and again first as a candidate and then as president. The administration has argued that cutting taxes is instrumental to his overall goal of restoring the American economy to its former greatness. In this budget, tax relief was simply zeroed out.
“This wasn’t really a budget. It was a collection of numbers,” said Jason Furman, who chaired the Council of Economic Advisers under President Barack Obama. “The administration not only failed to spell out explicitly what their policies were, but didn’t even leave any sort of placeholder to indicate how much they had budgeted for their policies.”
A question about the purpose of the president's budget was among those sent to the OMB spokesman that received no response.
Some observers were so confused by the budget Trump sent to Congress that they assumed that the administration must have made some kind of mistake. Writing in The Washington Post, former treasury secretary Larry Summers wondered whether the administration had simply forgotten to include the costs of reduced taxes for the federal government's bottom line, while still counting the benefits for the economy.
“This is a mistake no serious business person would make,” he wrote. Defending the budget the next day, Mulvaney insisted that the administration was not, in fact, proposing a tax cut — a position he abandoned in this week's interview.
Can Trump balance the budget?
Aside from these more philosophical questions, Mulvaney's reversal in Wednesday's interview raises additional queries about how cutting taxes would interact with other promises the president has made.
For instance, the budget envisions balancing federal finances in 10 years. Yet if Trump is serious about cutting taxes, he would also have to find additional means of reducing spending in that time.
Already, the budget proposes extreme reductions in outlays. As an example, the budget would reduce federal spending on Medicaid — the program that provides health insurance to the needy — by as much as $1.4 trillion over a decade.
Trump would have to propose additional cuts on top of those to balance the budget while bringing down taxes.
The OMB spokesman did not respond when asked whether Trump had a plan to balance the budget, assuming his tax policies were enacted.
Okay, so what about the economy?
Another question for the administration is what Trump and his deputies think a tax cut would mean for the economy. The policies included in Trump's budget would increase the pace of growth in gross domestic product from just under 2 percent annually to 3 percent a year, the document projects.
Mulvaney said in Wednesday's interview that the administration supports a tax cut because doing so would contribute more to economic growth. Already, though, many economists in both parties view the projection of 3 percent as optimistic at best.
The spokesman also did not respond to a question about whether the administration had a more ambitious forecast for growth assuming taxes were cut.
Will tax cuts pay for themselves?
Finally, Mulvaney's comments Wednesday appear to be at odds with statements from other officials in the administration — including Trump — on the consequences of cutting taxes. The OMB spokesman also did not respond to a request to explain the discrepancy.
Mulvaney said his colleagues in the administration were considering plans that would increase the deficit, but they have said that tax cuts will not ultimately result in more borrowing. They have argued that the stimulus to the economy would encourage Americans to work and to invest — and they would pay more in taxes on all that additional income.
In an interview with the Economist last month, the president and his treasury secretary, Steven Mnuchin, said that an increase in the deficit in the short term from reduced taxes would be balanced by more revenue in the long term.
“It is OK, because it won’t increase it for long. You may have two years,” Trump said.
“The plan will pay for itself with growth,” Mnuchin said in April.
Experts are on Mulvaney's side in this debate. In a recent survey of 37 prominent economists, all said that Trump's tax policies were likely to increase the deficit.