Trump's budget accused of $2trn accounting error

Tax cut mistake would 'justify failing a student in an introductory economics course', says former Treasury secretary

Trump Town Hall Meeting
(Image credit: Win McNamee / Getty)

Donald Trump's first budget has been accused of containing a mistake that would "justify failing a student in an introductory economics course".

It's not a little detail neither: according to former US Treasury secretary Larry Summers, it is the "most egregious accounting error in a Presidential budget in the nearly 40 years I have been tracking them".

Writing in a blog post that has been widely reported, he says the mistake undermines what were already some "ludicrously optimistic economic assumptions".

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The problem is Trump's $2trn (£1.5trn) of tax cuts, which the administration lists as "revenue neutral" because they are cancelled out by additional tax raised due to the growth it is claimed they will generate.

However, it also claims those same tax cuts will help the US economy achieve three per cent growth - effectively counting them twice.

"This error is akin to buying a company assuming that you can make investments that will raise profits," says Summers.

"But then, in calculating the increased profits, counting the higher revenues while failing to account for the fact that the investments would actually cost some money to make.

"This is a mistake no serious business person would make."

That's a stinging rebuke for Trump's administration, which sells itself on business experience and acumen.

Civil servants would surely have known better and so must have been either "cowed, ignored or shut out", added Summers, who served under Bill Clinton for his entire eight-year term of office and is a former World Bank chief economist.

White House budget director Mick Mulvaney denied the numbers were in error. "The money can be used to both reduce the budget deficit and offset Mr Trump's proposed tax cuts," he told the BBC.

"There's other places where we were probably overly conservative in our accounting."

The New York Times adds that the budget is controversial for other reasons, not least hundreds of billions of dollars of cuts over the next decade "that would cut deeply into programs for the poor".

Democratic congresswoman Pramila Jayapal said austerity measures were "astonishing and frankly immoral, saying: "This budget starts by taking away healthcare, then food, then housing, then education, then job opportunities".

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