The Coming Fiscal Derailment - Why FY 2019 Will Sink The Casino

For instance, the only semblance of honesty in the claim that the bill is a "middle class tax cut" is the 2-3 points of downward adjustment in the 7 marginal rate brackets compared to current law and the doubling of the child credit to $2000.

In the sunset year of 2025, however, those measures would save taxpayers $250 billion. compared to current law. Yet if there is any certainty in this world at all, it is that a legislative and political bloodbath will ensue when the Congress comes check-by-jowl with a quarter trillion dollar per year tax increase on 150 million individual taxpayers in 2026.

Likewise, the $53 billion per year cut for pass-thru businesses expires in 2025-even as the corporate rate cut to 21% (at a cost of $150 billion per year) stays on the books forever. That's not going to happen in a month of Sundays, either.

From the other side of the equation (i.e. payfors), the limit on interest deductions for business debt tightens sharply in the outyears. This causes the "payfor" gain to nearly double from $20 billion per year to $37 billion (2027), while at the same time a whole new regime of amortization of corporate R&D rather than 100% expensing incepts in 2022-raising a projected $120 billion in the final six years of the bill.

Since the K-Street lobbies and business PACs essentially wrote the current bill, we have little doubt that they will have the clout to "un-write" what amounts to $200 billion in phony revenue increases in the out years when the time comes.

In short, we will demonstrate that the true 10-year cost of the GOP's tax bill folly is in the order of$2.5 trillion on a honest accounting basis, and that under current circumstances it doesn't have a snowball's chance in the hot place of paying for itself with higher growth.

But for the moment, however, the FY 2019 budget disaster also explains why coping with this fiscal monstrosity in the outyears in the context of baseline deficits which already total $10 trillion over the period will be next to impossible.

As is evident below, the FY 2019 revenue loss from the final conference bill will total $280 billion, thereby reducing Uncle Sam's collections to just $3.40 trillion compared to the aforementioned $4.575 trillion of spending.

So there you have it: An FY 2019 budget deficit of $1.175 trillion-and you need to add another$100 billion for off-balance sheet programs that add to the borrowing requirement.

Even under the CBO's generous estimate of nominal GDP for FY 2019 ($20.7 trillion), the Treasury's total borrowing requirement of $1.275 trillion would amount to 6.1% of GDP.

But here's the thing. That would be during months #111-125 of the business expansion that started in June 2009. As we have frequently noted, the US economy has never been there before-with the longest previous expansion during the far more benign 1990s totaling only 118 months.

And that is to say nothing of the fact that this purported record business expansion would be occurring at a time ultra-late in the cycle when the Fed is shrinking its balance sheet by an unprecedented rate of $600 billion per year.

In a word, something's going to give.

We'd bet a fair amount that one of those "somethings" will be a casino so delirious with momo madness that it is valuing the RUT main street businesses of America at 107X peak earnings.

GOP Tax Bill Would Set Up Years of Challenges

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