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David Stockman joined Fox Business and Neil Cavuto to discuss the latest stock surge on optimism of tax cuts and the reluctant belief in the Trump plan.
Neil Cavuto started the conversation by prompting Stockman about deficits and what to expect from tax cuts. The former Washington insider pressed, “There is no way you’re going to cut the corporate tax by $2 trillion and not pay for it.” Cavuto immediately reacted asking, whether he thought the cut would cause a boom in the economy to which Stockman emphatically replied, “Of course it won’t. When you take the corporate tax at $350 billion and cut it to $150 of revenue a year, where do you get the $200 billion hole filled up? It would take a $1.5 trillion increase of corporate income profits to fill the hole.”
“That is not going to happen. Most of the time what happens with the corporate tax is you move you see business move the accounting operations overseas. You don’t necessarily move jobs. So, if we reduce the corporate tax – which I think is a great idea and should be gotten get rid of – but you have to replace it with something and pay for it.”
David Stockman was the Director of the White House Office of Management and Budget under President Ronald Reagan. He also served as a two-term Congressman from the great state of Michigan. Following his service in government, Stockman spent three decades on Wall Street. His latest bestselling book, Trumped! A Nation on the Brink of Ruin… And How to Bring It Back is out now.
“You always build into the base-line more than you are going to get anyways. If you do get some good effects from a tax cut, that will only make up for the optimism you start out with. Remember, President Reagan started with $930 billion of debt and ended up with $2.8 trillion. Those tax cuts didn’t pay for themselves. It started us down the road to the $20 trillion we have today.”
When asked how the Reagan administration factored in the economic boom that is similar to the current one experienced with the rhetoric surrounding tax cuts, Stockman responded “that’s all funny money in the stock market.”
“What you have today is the robo-machines tagging 2400 on the S&P and 21,000 points on the DOW. It is meaningless. It is not sustainable. We have an economy that is in very bad shape.”
Stockman when on to offer his analysis on the current White House and what to expect. He urged, “We’ve had $20 trillion worth of stimulus already and have $10 trillion built in before one dime of the Trump agenda is spent. What I would do is recognize that we’re going to have slow growth for a long time. We’ve been living way beyond our means. We’ve got to start moving towards a balanced budget. I would slash defense, not increase it. I would reform social security and Medicare and make the wealthy retirees pay their own way. I would dramatically reduce the size of Washington and the big block grants.”
“The reason that we’re not getting anywhere. Where we see President Trump proposing a huge corporate tax cut without paying for it is because everybody is at a dead end. This thing will be dead before arrival. Even the profligate politicians on the Hill are not going to cut revenue by $2 trillion over a decade and not replace it with something. This is just fantasy.”
When asked whether the current legislative agenda could take a Reagan approach in 1981 with a tax cut followed up with years later a way to pay for it in the form of eliminating loopholes. Stockman did not hold back by responding, “That isn’t what happened. The first tax cut was 6% of GDP when fully effective – which would be the equivalent to $1.7 trillion in today’s dollars. Then because it got way off the deep end, we had to regroup 40% of that tax cut with all of the tax increases… It had nothing to do with lower rates.”
“This is the last straw as far as I am concerned. He’s proving that he’s the 70-year-old kid in the candy store who wants one of everything. He wants more defense, more veterans, walls, law enforcement, infrastructure, tax cuts for everybody. Doesn’t he know there’s $10 trillion of new debt built in that he inherited. Whether he likes it or not, he’s got to address that. He can’t pile on more.” Stockman pressed, “Tax cuts don’t pay for themselves. They generate a little reflow, maybe 20%.”
Cavuto then asked what Stockman’s experience was with Reagan then and why they had a boosted experience. He responded, “We had massive deficits that got resolved, not with economic growth, but as a result of a growing labor force of population… The idea that there was some extraordinary boom in the economy is not true. The boom that we had for a few years was due to a pure Keynesian deficit.”
“We have no good choices. Isn’t it time in this country that we sober up and recognize that printing and borrowing money is not any ticket to prosperity that is sustainable or real in any way? Unfortunately, there is no net tax cut that’s going to happen. It will have to be revenue neutral and I doubt whether the votes are there to accomplish it.”
To catch the full interview on Trump’s tax cuts and more with David Stockman CLICK HERE.
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