Lawrence Summers called Donald Trump’s first Budget “ludicrous”. It makes extravagant assumptions of high GDP growth for a decade. It also makes the elementary mistake of double-counting. Mr Trump proposes to cut tax rates and to make spending cuts.
The spending cuts are assumed to lead to a $3.6-trillion reduction in federal expenditure over a decade. The tax cuts will supposedly stimulate activity, leading to annual GDP growth of three per cent. The growth acceleration will, despite reduced tax rates, garner an extra $2 trillion in tax revenues over the decade. Hence, the federal deficit will be reduced by $5.6 trillion,
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