In late 2007 and 2008, the United States and the global economy were devastated by the subprime crisis. That financial calamity was so named due to the hundreds of thousands of foreclosed upon homeowners who were unqualified for the loans they received from mortgage originators around the country. The disaster did not result from the borrowers' deceit or government policy to spur home ownership among lower-income Americans, but from an entire financial sector that was incentivized to loan them money whether they could pay it back or not. Banks and private mortgage firms offered the loans because companies like Bear Stearns, Lehman Brothers, and Goldman Sachs could "securitize" and sell the bundled mortgages insured by derivatives provided by, among others, AIG. It all worked for everyone, as long as the rating agencies like Fitch and Moody's gave them AAA ratings. And as long as housing prices kept going up. But when the bubble burst, trillions of dollars of wealth were wiped out and millions of Americans were left underwater.
Now, as the country prepares to go the polls, Americans are running the risk of a new—and completely avoidable—subprime crisis of a different kind. On Nov. 8, voters will choose to "loan" the White House (and the all the power that goes with it) to either Democrat Hillary Clinton or Republican Donald Trump. The tightening polls show a growing possibility that Americans will mortgage their futures to the reality TV star, despite 62 percent of respondents (including 23 percent of Republicans) saying Trump is not "qualified to serve as president.”
But the bad risk Trump represents isn't limited to his temperament, intellect and judgment (or lack thereof). It's not just that his serial bankruptcies and dubious business practices can and do get him laughed out of bankers' offices. As it turns out, his repeated promises to pay for expanded defense spending, his maternity leave program, Medicare prescription drugs, Social Security, and more by cutting "waste, fraud, and abuse" doesn't pass either the giggle test or basic math. Worse still, a growing consensus of economists warn that the Subprime President Trump's mammoth tax cut windfall for the wealthy and balanced budget boasts would necessarily produce the next recession—or much worse.
Now, the record of businessmen in the White House is not a happy one. But Trump's past is particularly disturbing. After all, his businesses have declared bankruptcy four times in 1991, 1992, 2004, and 2009. As former rival turned endorser Florida Sen. Marco Rubio put it in February:
"When his companies went bankrupt, the first people that didn't get paid were the subcontractors, the plumbers and the pipe-fitters, the people that laid bricks and all those people who worked for a living, they didn't get paid. He got his money."
Donald Trump admitted in a New Jersey bankruptcy court that "I don't like the 'b' word." But he doesn't hesitate to boast about it as a routine business tactic, either. As he explained to ABC in 2011:
"We'll have the company. We'll throw it into a chapter. We'll negotiate with the banks. We'll make a fantastic deal. You know, it's like on 'The Apprentice.' It's not personal. It's just business."
But for many of Trump's customers, workers, contractors, and partners, it's bad business. Just ask the employees of the now-defunct Trump University, Trump Mortgage, Trump Airways, Trump Casino, and Trump Magazine. Catastrophic, too, for his business partners. As USA Today reported, during his career Trump and his various business entities have been involved in litigation an almost incomprehensible 3,500 times. Those cases include the fraud case against Trump University, a lawsuit against the Better Business Bureau, ongoing litigation surrounding the Trump Casino bankruptcy, and the fallout from a group of Hong Kong investors he stiffed. The Donald has a proven track record of failing to pay his bills on time, in full, or at all. (In July, a Florida painter won $34,000 and $300,000 in attorneys' fees in a case involving Trump's failure to pay him for work performed at his Doral golf resort.)
The result, as the Wall Street Journal reported in March, is that the Trump Organization has been left with the German Deutsche Bank as its primary remaining source of financing:
Other Wall Street banks, after doing extensive business with Mr. Trump in the 1980s and 1990s, pulled back in part due to frustration with his business practices but also because he moved away from real-estate projects that required financing, according to bank officials. Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley are among the banks that don't currently work with him.
As Russ Choma and David Corn documented in June, his dealings with Deutsche Bank would immediately create a conflict of interest for President Trump, as "He owes at least $100 million to a foreign bank that's battled with US regulators." And given the Trump Organization's "deep ties to global financiers, foreign politicians and even criminals," Kurt Eichenwald warned in Newsweek, "If Trump moves into the White House and his family continues to receive any benefit from the company, during or even after his presidency, almost every foreign policy decision he makes will raise serious conflicts of interest and ethical quagmires."
It's no surprise that Donald Trump has taken the unprecedented step of asking the American people for the electoral equivalent of a "no doc loan." That is, 40 years after the practice of candidates releasing their tax returns became routine (and 1,711 days after he advised Mitt Romney to "release them now"), Trump has refused to make his public. Like some subprime borrowers of the early 2000s, The Donald seems to believe he need not provide proof of income and assets to get what he wants. And as I noted last week in "Defining Trump's Deviancy Down:"
Trump's secrecy is simply unparalleled in modern presidential politics. Hillary Clinton has released 38 years of tax returns, while the Trump campaign has published zero. (Facing an IRS audit, even Richard Nixon made his returns public precisely because, he said, "people have got to know whether or not their president is a crook.") Unlike Hillary Clinton, we have no idea how much money Donald Trump makes each year or how. We don't know what, if anything, he gives to charity. (The Donald hasn't given any money to his own Trump Foundation since 2008.) Americans don't know what tax rate Trump pays, or if he even pays Uncle Sam taxes at all. He's probably worth much less than the $10 billion he claims. Regardless, as I've documented elsewhere, his tax proposals would doubtless save him millions of dollars annually, and his heirs billions after he goes to the great reality show in the hereafter.
But if Donald Trump is keeping his personal finances secret, there's no mystery what his policy proposals will do to the United States Treasury and the American economy. The question isn't whether Trump's plans will do real harm, but how much.
Take, for example, Trump's new proposal to provide six weeks of paid maternal leave to workers of the 88 percent of employers who do not currently provide such a benefit. Hillary Clinton's much broader program of family and medical leave carries a 10-year price tag and is funded by tax increases on the wealthy. But as Kevin Drum noted, "The Trump campaign said the cost of his paid-leave policy would be offset by reducing waste and abuse in the unemployment insurance program." And that, Drum explained, "is as clear as mud."
As for the cost, well, who knows? But let's take a rough swag. There are about 4 million births per year in the United States. Figure 70 percent of women are in the labor force and 90 percent don't get employer maternity leave. That gets us to 2.5 million women eligible for Trump's program, and on average each will get a total of, oh, let's say $2,000 or so. That comes to $5 billion.
And how will it be paid for? By reducing "waste and abuse" in the unemployment insurance program. Again, let's take a rough swag at this. Total benefits in 2016 are projected to come in at $32 billion. Of that, about 10 percent represents overpayments, or $3.2 billion. A vigorous program could probably cut that by half, saving $1.6 billion. Finally, the federal share of UI is roughly 20 percent, so that means the feds would save about $0.3 billion. [Emphasis mine.]
If that "waste and abuse" talking point sounds familiar, it should. Just days earlier, Donald Trump used the same sound bite to explain how he'll fund his big boost in funding for the Pentagon. As the Los Angeles Times cautioned last week after Trump's big national security speech, "Trump says he would restore hundreds of billions in military cuts, but it's unclear how he'd pay for it."
Which is exactly right. Trump didn't merely call for reversing the 2011 budget "sequester," a move that would add $500 billion in defense spending over the next decade. "Those costs could increase substantially, depending on the size and scope of other promises Trump made Wednesday to expand the U.S. fleet." And how would Trump pay for this big build-up?
I will ask Congress to fully offset the costs of increased military spending. In the process, we will make government leaner and more responsive to the public.
I will ask that savings be accomplished through common sense reforms that eliminate government waste and budget gimmicks - and that protect hard-earned benefits for Americans.
This is the budgetary equivalent of suggesting a magic unicorn will pick up the tab. For example, FactCheck.org found that his projected savings from reducing the federal work force, "improper government payments," and collecting unpaid taxes would at best "still only cover about two-thirds of the total cost of Trump's military spending increases." It's probably much less, in part because Republicans have gutted the IRS budget for five straight years, leading the tax gap between what Americans and their businesses owe and what they pay to grow to as much as $500 billion a year. (As John Koskinen, the IRS Commissioner that House Republicans are currently trying to impeach lamented in 2013, "I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not.")
So, "there isn't enough unemployment fraud in the United States to come close to paying" for Trump's leave program for wealthy families and there certainly isn't enough waste and abuse in the federal government to fund The Donald's Pentagon spending spree.
Or Social Security. The retirement program for 60 million elderly Americans will need a funding increase after 2034. While both Bernie Sanders and Hillary Clinton pledged to provide those funds by raising the payroll tax "cap" on income over $120,000 a year, Trump has promised to leave Social Security benefits untouched by … wait for it … cutting government waste, fraud, and abuse. In an April 2016 ad, the reality TV star turned GOP frontrunner pledged he would "save Social Security and Medicare without cuts." As he put it at a December 11, 2015 rally in Iowa:
"So, you've been paying into Social Security and Medicare...but we are not going to cut your Social Security and we're not cutting your Medicare. We are going to take jobs back from all these countries that are ripping us off and we are going to become a wealthy country again. And we are going to be able to save your Social Security. We are not taking it...so there is tremendous waste, fraud, and abuse. What we are going to do is we're going to save Medicare, we're going to save Social Security, we are not going to raise the age, and we're not going to do all the things that everybody else is talking about doing. They are all talking about doing it and you don't have to." [Emphasis mine.]
But what the conservative National Review called "Trumpian hyperbole," the libertarian Reason concluded "makes clear that he has no idea what he's talking about." The Committee for a Responsible Federal Budget estimated the savings at a comparatively paltry $3 billion a year. And if "Trump's plan to preserve Social Security by eliminating waste, fraud, and abuse doesn't even come close to adding up," his Medicare schemes are more comical still.
During the GOP primaries, Trump (like Democrats Hillary Clinton and Bernie) called for enabling Medicare to negotiate drug prices. Ending that prohibition enshrined in President Bush's 2003 Medicare Part D prescription drug program, Trump boasted, would produce YUGE savings.
"We are not allowed to negotiate drug prices. Can you believe it? We pay about $300 billion more than we are supposed to, than if we negotiated the price. So there's $300 billion on day one we solve."
There are only two problems with Trump's claim: currently, that negotiation is illegal. Congressional Republicans are committed to keeping it that way. Second, as the Washington Post helpfully pointed out:
Total spending in Medicare Part D (prescription drugs) in 2014 was $78 billion. So Trump, in effect, is claiming to save $300 billion a year on a $78 billion program. That's like turning water into wine.
And as Bloomberg noted, total spending on prescription drugs for the entire United States was $298 billion in 2014. Even in the most accommodating scenario, Donald Trump is claiming he can get drugs for all 320 million Americans for free.
It's no wonder fact-checkers, analysts, reporters and lowly bloggers use terms like "absurd" and "ridiculous" and "comical" and "hallucinatory" to describe Donald Trump's budget alchemy. America's would-be subprime president could actually pay for his government the old-fashioned way: by raising taxes. But with his proposed gigantic tax windfall for the wealthy, Trump has already foreclosed that possibility. And when combined with his protectionist trade policies and draconian immigration crackdown, the certain Trump recession would be the opposite of making America great again.
As Reuters reported this week, the analyst firm Oxford Economics forecast that a Trump presidency could cost the U.S. economy $1 trillion. "The consequences could be far-reaching," the assessment concluded of a Trump victory, potentially "undermining the anticipated recovery in global growth:"
If Trump were able to implement all of his proposed policies, that would undermine global economic growth and knock 5 percent off where U.S. gross domestic product (GDP) would otherwise be in 2021, U.K.-based economists Jamie Thompson and Sarah Maxwell said in a note Tuesday. That would erase as much as $1 trillion off the forecast size of the U.S. economy in 2021, Thompson said via email.
If that dire warning sounds familiar, it should.
Back in July, the deficit hawks at the Committee for a Responsible Federal Budget (CFRB) offered an analysis showing Trump's massive tax-cut windfall for the wealthy would fuel $11.5 trillion in additional national debt over the next decade. That dire forecast arrived hot on the heels of a study by former John McCain adviser and current Hillary Clinton donor Mark Zandi of Moody's Analytics. He found that if all of Trump's proposed policies became reality "the U.S. economy would plunge back into recession, losing millions of jobs."
But as horrifying as the predicted numbers would be under President Trump—a long recession from 2018 through 2020, 3.5 million jobs lost, unemployment catapulting to 7.4 percent, and the U.S. economy shrinking by 2.4 percent—America's future could actually be much worse. That's because there's one other Trump pledge neither analysis took into account. To Bob Woodward on March 31, Trump proclaimed he could eliminate the entire national debt "fairly quickly." Just how how quickly?
"Well, I would say over a period of eight years."
You read that right. To erase all of Uncle Sam's red ink current and projected by the end of his second term, President Donald Trump would have to slash federal spending by more than 90 percent. (See chart below.) That's not just the budgetary equivalent of causing the sun to rise in the west or switching off gravity on Earth. Trump's ax would trigger a global economic calamity leaving Americans nostalgic for the Great Depression.
To try to understand Trump’s budget alchemy, we need to travel back to late 2015.
During the Republican primaries, the nonpartisan Tax Policy Center (TPC) estimated the 10-year cost of the Trump tax plan at between $9.5 trillion and $12 trillion. By cutting the top income tax rate from 39.6 to 25 percent, capping the dividend and capital gains rate at 20 percent, and allowing "pass-through" businesses and partnerships to pay only a 15 percent rate, Trump would deliver a huge payday to the top 1 percent of earners. (In August, Trump revised his September 2015 tax plan and its three income tax brackets of 10, 15, and 25 percent to 12, 25, and 33 percent. The additional revenue is not reflected above.) Businesses, too, would benefit as the statutory corporate tax rate was slashed from 35 to 15 percent. (On top of that, the elimination of the estate tax, paid by less than a quarter of 1 percent of all fortunes, would—on paper at least—redirect billions of Trump's supposed $10 billion wealth from the U.S. Treasury to his heirs.) At the end of the day, the richest 0.1 percent of households—those bringing in at least $3.7 million a year—would on average pocket another $1.3 million annually. As TPC concluded:
These are tectonic shifts in tax policy.
Tectonic shifts, too, for Uncle Sam's bottom line. As McClatchy reported:
The Committee for a Responsible Federal Budget, which analyzed the plans of all the main presidential candidates, found that Trump's plans would add $11.5 trillion over the next 10 years, causing the debt to rise to 127 percent of the gross domestic product by 2026. The plan of his Democratic rival, Hillary Clinton, would also increase the national debt, but by less, adding $250 billion to the debt over a decade, bringing it to 87 percent of the GDP by 2026—which closely mirrors current projections.
And those current projections show the full extent of the red ink President Trump would have to mop-up over his two terms in office. According to the March 2016 forecast from the nonpartisan Congressional Budget Office, the next president will inherit a national debt of roughly $19.3 trillion. Under the current baseline forecast—that is, no changes to today's federal policies—the federal government will run up an additional $6.7 trillion. (As the table at the top shows, spending is projected to exceed tax revenue by $38.9 trillion versus $32.2 trillion.) But on top of that $26 trillion in debt, President The Donald over his eight-year tenure would add yet another $9.2 trillion. (That figure is pro-rated from CRFB's 10 year-forecast.)
So to keep his promise, President Trump would have to eliminate $35.2 trillion in debt "over a period of eight years." But to achieve that from spending cuts alone would be impossible in the real world: Trump would have to slash a mind-blowing 91 percent of all federal spending from 2017 through 2024.
Now, there are still two problems with fulfilling Trump's dangerous and contradictory promises for the government's budget, even for the most ardent of the "drown it in a bathtub" crowd. Assuming he could find a magic wand to make $35.3 trillion in spending disappear from a $38.9 trillion, eight-year budget, the U.S. economy would be a devastated hellscape if President Trump got anywhere close. As ThinkProgress pointed out when a balanced budget amendment was being kicked around Congress four years ago, even those comparatively modest cuts would produce an economic calamity on the scale of the Great Depression:
If the 2012 budget were balanced through spending cuts, those cuts would total about $1.5 trillion in 2012 alone, the analysis estimates. Those cuts would throw about 15 million more people out of work, double the unemployment rate from 9 percent to approximately 18 percent, and cause the economy to shrink by about 17 percent instead of growing by an expected 2 percent.
But President Trump would never get that far due to a second problem with his kamikaze cuts. Only about 30 percent of the federal budget is "discretionary," that is, subject to changing congressional appropriations each year. The rest, including Social Security, Medicare, Medicaid, interest on the national debt, is mandatory spending previously set into law by Congress and the president. In fiscal year 2016, which ends on September 30, the Office of Management and Budget (OMB) forecasts that discretionary spending will reach $1.22 trillion, or 31 percent of the $3.9 trillion total. Of those discretionary dollars, defense spending makes up $595 billion, or almost half. Everything else the federal government does—foreign aid, R&D, education, transportation, veterans' services, makes up the rest. So, even if President Trump wanted to commit national economic suicide, he would need Congress to go along and make it happen. Either way, he would have to violate one of his other campaign promises: no cuts to Social Security and Medicare.
Now, there are four claims Trump and his water carriers will offer to explain away his utter defeat at the hands of basic math. The first is the latest variation on the old Republican "dynamic scoring" scam. In GOP mythology, the hemorrhaging from the Treasury will magically be cauterized by the extra economic growth incentivized by lower tax rates. But this wouldn’t be just another case (backed up by the past four decades of American history) of failing to produce the massive "macroeconomic feedback" that Paul Ryan, Arthur Laffer, and their ilk have predicted and continue to predict. As CRFB's resident deficit scold Maya MacGuineas summed it up:
For Trump, it would take 5.4 percent annual growth to stabilize the debt, and over 10 percent to balance the budget. For some context, we haven't had 5 percent growth since the late 60s and early 70s—and back then we didn't have nearly as many people about to retire and leave the labor force.
But as a wide array of analysts across the political spectrum have warned, the United States would not experience explosive—and unprecedented—economic growth under a President Trump. Far from it. Even before his speech outside Pittsburgh this summer, The Washington Post and The New York Times warned of a crippling economic blowback from the trade war that would necessarily ensue from Trump's proposed 35 and 45 percent tariffs on Mexican and Chinese imports, respectively. The analysis prepared by Moody's Analytics found that:
They would, in fact, sock it to China and Mexico. Both would fall into recession, the model suggests, if Trump levied his proposed tariffs and those countries retaliated with tariffs of their own.
Unfortunately, the United States would fall into recession, too. Up to 4 million American workers would lose their jobs. Another 3 million jobs would not be created that otherwise would have been, had the country not fallen into a trade-induced downturn.
For his part, Trump is unconcerned. As with his immigration and tax plans, the golf aficionado is going for a mulligan. During the roll-out of his child care program this week, Trump announced "I will outline my full economic plan, which is completely paid for through economic growth and proposed federal budget savings." Regardless, the real estate hustler insists, the specifics of proposals don't matter anyway:
"My voters don't care and the public doesn't care. They know you're going to do a good job once you're there."
Ditto, The Donald wrongly claims, for his tax returns. "As far as my taxes are concerned, the only one that cares is the press … I think people don't care."
To put it another way, you can fool some of the people all of the time, and that is Donald Trump's target market.
Let's just hope that his target market isn't big enough to let Donald Trump mortgage the White House for the next four or (God forbid) eight years. Because when the bills for the subprime president come due, it will be a catastrophe for all of us.