There's a $2 trillion mystery in the middle of Donald Trump's budget

Key Points
  • Treasury Secretary Mnuchin and budget director Mulvaney give conflicting versions of how Trump's tax cuts will pay for themselves
  • Democratic Sen. Ron Wyden accuses White House of "Bernie Madoff math"
President Trump's $2 trillion budget mystery
President Trump's $2 trillion budget mystery

The centerpiece of President Donald Trump's plan to revive the American economy is a package of massive tax cuts for businesses and households that the administration has promised will pay for itself. But after the White House released its budget this week, there's a lot of head-scratching over how that actually works.

Treasury Secretary Steven Mnuchin has repeatedly emphasized that the administration expects the tax cuts to kick the economy into high gear: Businesses will invest and hire more workers. Those newly employed workers will spend their paychecks. The economy will grow, and the government will ultimately reap the benefits through higher tax revenues as a result.

Mnuchin estimates that virtuous cycle — known in policy circles as "dynamic scoring" — will lead to sustained, 3 percent economic growth and generate an extra $2 trillion in tax revenue over the next decade.

Donald Trump's budget breaks these five campaign promises
Donald Trump's budget breaks these five campaign promises

"Any plan we put forward, we believe should be paid for with economic growth," he told lawmakers on Capitol Hill last week.

So it was not surprising that the White House included an estimated $2 trillion in "economic effects" in its budget.

The problem: The money isn't being used to pay for the tax cuts. It's being used to eliminate the deficit by 2027.

That begs the question: How does the administration plan to pay for tax cuts?

The budget director says one thing ...

Economist Lawrence H. Summers, who served as director of the National Economic Council under President Barack Obama and Treasury secretary under President Bill Clinton, accused the administration of double-counting — applying the $2 trillion both toward paying for the tax cuts and toward paying down the deficit.

Budget director Mick Mulvaney brushed aside that criticism Thursday during testimony on Capitol Hill. Pressed by lawmakers, Mulvaney said the budget assumes that the tax cuts will be paid for by raising taxes elsewhere — a different method of accounting known as "static scoring."

"The actual policy that will be put in place, the way you put the budget together was that the tax reform package would be static," Republican Sen. Bob Corker said.

"Correct," Mulvaney replied.

... and the Treasury secretary says another ...

One of the ways to raise revenue, outlined in the single page of tax reform principles released by the administration last month, is to eliminate nearly all personal deductions except for mortgage interest, charitable donations and retirement plans. The administration has not listed which corporate deductions will be headed for the chopping block. And it has not estimated how much any of these moves might raise — or whether they would indeed be enough to pay for the deep tax cuts that the administration has championed.

Mnuchin attempted his own balancing act during his separate testimony Thursday before Congress. He said that the tax plan will be paid for both through economic growth and through increasing revenue in other ways, but he did not provide a breakdown. Mnuchin said the details have yet to be hashed out.

"When the president's budget was done, we were not ready to have a full-blown tax reform plan that we could put into the budget," he said. "I assure you when we present a tax plan, we will not be double-counting the growth."

... and the Democrats pounce

Democrats seized on the discrepancy. Sen. Ron Wyden of Oregon called it "Bernie Madoff math." Sen. Bob Menendez of New Jersey compared it to Enron.

And Missouri Sen. Claire McCaskill chided the secretary for including the economic benefits from the tax plan in the budget without including any estimate of its cost.

"How can this document even be taken seriously?" she asked.

There is $2 trillion riding on the answer.

Watch: Trump's tax plan math

Trump's tax plan math
Trump's tax plan math