President Donald Trump’s top economic adviser warned Democrats Thursday that he would fight any tax increase to reduce the deficit if they take control of the House in the midterm elections next Tuesday.
Larry Kudlow, director of the National Economic Council, said tax increases won’t be needed to curb red ink because the administration is counting on robust economic growth of at least 3 percent a year.
“Absolutely not,” Kudlow said at forum on small businesses sponsored by the Washington Post. “I do not believe we will raise taxes.”
Deficits will decline every year as a share of the economy, he said, through sustained economic growth and spending cuts. “I think we need 10 years or so of economic growth running at about 3 percent a year,” he said.
Many other economists have expressed doubt that such a sustained growth rate is achievable without any downturn in the coming decade. The nonpartisan Congressional Budget Office has projected a growth rate of 3.3 percent this year before slowing to an average annual rate of 1.9 percent over the coming decade.
Meanwhile, annual deficits are on course to soar, hitting the $1 trillion mark in fiscal 2020 and growing to $1.5 trillion in fiscal 2028, the CBO forecast shows.
Kudlow also ruled out reducing the deficit by curbing “large entitlements,” which presumably include Social Security and Medicare. Trump ran for office on a pledge not to touch those programs, which the CBO said are key drivers of rising deficits.
“There’s a lot of money in discretionary programs and smaller entitlements,” Kudlow said of possible spending cuts, without elaborating.
The comments underscored the difficulty lawmakers could face next year in trying to reach a consensus on budget policy under a divided government, if Democrats win a majority in the House as forecasts suggest they might. An average of polls by Real Clear Politics gave Democrats a 7.6 percentage point edge nationally in a generic ballot.
Kudlow also panned a top campaign priority for many Democrats: an increase in the federal minimum wage.
“My view is a federal minimum wage is a terrible idea,” he said. “Idaho is different from New York.”
And he sought to downplay Trump’s public criticism of the Federal Reserve, which has been raising interest rates to avoid overheating the economy and triggering inflation. While Trump has criticized the Fed publicly, Kudlow said, the president hasn’t called Federal Reserve Chairman Jerome Powell to head off a rate increase.
“He’s not disrupting their independence,” Kudlow said of the president.
Kudlow pointed to a National Federation of Independent Business survey from September showing record levels of optimism among small businesses as proof that the administration’s tax and regulatory policies were working as intended. “Why would you want to overturn what appears to be a very strong economic period backed up by pro-growth policies?” he said of the coming choice in the midterm elections next week.
Democrats say the administration’s tax cuts mostly benefited the wealthy and will send deficits soaring even higher than previously projected. The CBO said the tax cuts will increase deficits by nearly $1.9 trillion over a decade, even after accounting for additional economic growth.
When asked if small businesses should expect to see 3 percent growth next year, Kudlow said, “Yes. Maybe higher.”
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