Feb 12, 2018

Scholars Respond to Budget Proposal

Brian Knight Senior Research Fellow , Christine McDaniel Senior Research Fellow , David M. Primo Senior Affiliated Scholar, Veronique de Rugy Senior Research Fellow

The White House released President Trump’s 2019 budget proposal Monday morning. Below, Mercatus Center scholars comment on a few of the policy recommendations contained within.

Brian Knight on the Consumer Financial Protection Bureau’s funding

The proposal to bring the Consumer Financial Protection Bureau (CFPB) into appropriations isn’t surprising. Since its inception, there have been concerns that the CFPB lacks accountability. The recent decision by the DC Circuit that the CFPB’s structure, a sole director removable only for cause, is constitutional is only going to increase the desire to make the CFPB accountable to elected government officials in some way. At this point, appropriations are the last best tool to make the agency accountable.

Christine McDaniel on the budget’s call for trade reciprocity, and reports that President Trump will announce a reciprocal import tax proposal this week

A reciprocal tariff is not a good idea for several reasons. First, it is an import tax. This tax will make our imports more expensive and reduce competition. For consumers, and as others have noted, a ten percent tax on imports is akin to a ten percent additional tax on your Walmart checkout. For businesses—many of whom rely on imported intermediate inputs—it will make their cost of doing business go up. Remember, 40 to 50 percent of US imports are intermediate goods.

Second, it will not reduce the trade deficit. The only sustainable way to reduce the trade deficit is to overhaul the tax code to increase the incentives to save or decrease the incentives to consume (or both). 

Third, the administration of a reciprocal tariff is not practical. The United States has over 150 trading partners, and we import over 10,000 goods. Moreover, each country has different tariffs on different goods, and each country’s tariff schedules has been negotiated in a multilateral setting. Not only would such a tariff (import tax) simply disregard agreed upon schedules, but it would also be impossible to administer in any cost effective way.

David Primo on the need for institutional reform

Instead of taking the shovel away from Congress as it digs us deeper into a fiscal hole, the president is asking, “Can I help dig?” What’s needed instead is a clear plan for entitlement reform matched with a set of priorities for federal spending that create a sustainable budget moving forward. Difficult decisions need to be made, but these decisions get harder with each year of inaction.

Veronique de Rugy on the path forward for deficit reduction

The President’s proposed budget unrealistically expects that it can grow spending and that economic growth will keep the deficit down. The only way to realistically keep the deficit from growing is to have a mix of strong growth and spending reduction. There’s no way around it.

 

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