The President’s Wish List, aka The Federal Budget

Every year at this time Washington’s political actors stage a fiscal drama. In three acts.

Act One: The President sends his proposed budget for the coming fiscal year to congress.

Act Two: The House of Representatives, which has been cast by the Constitution in the role of initiators of money bills, announces that the script sent by the President is DOA — dead on arrival.

Act Three: The players meet, some cast by the White House, some by the congress, some by the Treasury, and negotiate a rewrite of the President’s proposed script acceptable to all the players. The voters applaud, or boo, or sigh with relief as they turn to more enjoyable fare.

Except this year. Act Three will have a different ending: stalemate. With elections around the corner, the actors, uncertain who among them will survive to play their roles in the finale, agree to leave the stage setting unchanged, and lower the final curtain only after the November election, even though the 2021 fiscal year will have begun on October 1.

The dispute between the lead actor and the rest of the players is not over the play’s total budget, which is up 21% since the show’s star first trod the boards. They can always extract more from the captive audience (taxes) or, as is increasingly the case, borrow more from angels, which is what investors are known as in the world of the theater. Battles are over how the cash is to be spent.

The President wants more in 2021 (+0.3%) for scenery — a wall, tanks, a new submarine-launched nuclear warhead. The other actors want to pamper the audience with goodies such as larger pensions, debt relief, medicines and doctors to care for them, and oppose the proposed 5% cut in non-defense programs.

Reviews of this play in The New York Times are scathing: “…widen the gap between rich and poor … chip away at the nation’s social net …”. No surprise: the newspaper of record (mostly a record of Trump miss-steps, real and concocted) has been panning the lead actor’s performance ever since he became a player on this stage.

The impeachment of the President so infuriated him that he could not contain himself at the usually sedate, bipartisan prayer breakfast, and berated his Democrat accusers in ugly, personal terms. His acquittal by the senate so infuriated the Democrats that they responded in kind, with some arguing for a continuation of the investigations of his actions in the matter of military aid to Ukraine — preparation for a second impeachment should Trump be re-elected.

Any hope of a cooling off faded as the President foolishly stuck his twitter finger into the business of the sentencing of a former associate. This gave his enemies an opportunity to charge “abuse of power”, which it isn’t, and his Attorney General to warn that he is in a better position to tell the President to take this job and shove it, than Trump is to lose the AG just now. Rage is not the stuff of which civil negotiations of the national fisc are made.

Neither is the yawning policy gap between the President and the Democrats who have moved left, far left in many cases, since 2016. Trump’s priority is to increase total spending on defense while reducing its share of a growing GDP from 3.2% to 2.2% by 2030, lower immigration (legal and illegal if truth be told), add to the wall on the Mexican border, and lower the growth in social spending by requiring food stamp and Medicaid recipients to work if they are capable of doing so, among other changes. Tax cuts would also be nice.

Outraged Democrats would instead cut military spending or hold it to its present level, and increase social spending, financing that increase by taxing financial transactions (Harvard’s Antonio Weiss reckons a phased-in ten-basis-point levy would raise $60 billion annually), raising taxes on corporations, the incomes and wealth of billionaires and millionaires, and in some cases the middle class.

Perhaps even worse, the two parties are on different sides of the social divide that separates the largely coastal self-styled progressives from much of middle America, fly-over country, with its clapped-out industrial cities. President Obama described these victims of globalization as “bitter” people who “cling to their guns or religion”, Hillary Clinton called them “deplorables, and left-leaning cable news network CNN mocks their accents and presumed low levels of education and intelligence. Trump calls them “the forgotten men and women of our country”, and his core constituents. Guess who they vote for.

The President’s adherents are looking to the economy to move swing voters into the President’s column come election day. Yes, they say, he is vulgar, but my 401(k) is up about 55%. Yes, I wish he would holster that twitter finger, but he has rolled back regulations that were stifling the growth of my small business. Yes, his administration is in chaos, with record turnover, but he has reduced my taxes. Yes, he has pushed up the prices I am paying for some imported goods, but he has reined in China’s unfair trade practices and cut a deal with Canada and Mexico that is better for American workers and farmers than NAFTA was. And yes, he has tried to undermine the independence of the Fed, but interest rates are low, and my wages have increased enough for me to be able to buy a house. And there are all those new jobs, jobs, jobs.

And the deficit? The President is projecting a revenue shortfall of $966bn (this year’s is already above $1tn) for the fiscal year beginning October 1, 2021. He also projects that it will be eliminated by 2035 — hardly the “relatively quickly” he promised in 2016 — because the economy will grow at an annual rate of 3%, a full percentage point higher than most forecasts.

Meanwhile, investors, seeking the safety of a dollar asset, continue to buy America’s IOUs at interest rates so low as to ignore the possibility of being paid back in inflation-depreciated dollars. To the question “Would you buy a used government bond from this President?”, the answer seems to be, “Yes”. Besides, as Trump, who cannot be insensitive to the fact that deficits fuel growth, and who has made a business career of a casual attitude towards repaying lenders, was overheard telling diners at Mar-a-Lago, “Who the hell cares about the budget?” Surely, none of the players in the farce, or tragedy — choose your descriptive — now playing in Washington.