David Stockman, the former budget director for President Reagan, said President Trump’s tax reform bill will cost more than what it will make in revenue.
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“This tax cut will cost the first year $280 billion. We already had a $700 billion deficit built in, they’re adding $100 billion to appropriations. You got $100 billion disaster relief. That is $1.2 trillion in the 10th year of a recovery. It’s unheard of,” he said.
According to the Congressional Budget Office, The Tax Cuts and Jobs Act will add approximately $1.5 trillion to the debt over a decade.
“Even if it generates 1% more growth next year, that’d be $200 billion in GDP $40 billion of revenue, but you’re giving away $280 billion. You got a $1.2 trillion to borrow and you’ve got the Fed clearly signaling for the first time in 30 years that they’re not monetizing the debt. In fact they’re shrinking their balance sheet,” he told FOX Business’ David Asman on “After the Bell.”
During Janet Yellen’s final meeting Wednesday as Fed chair, the Federal Open Market Committee decided to leave its benchmark interest rate unchanged. Many experts anticipate that incoming Fed Chair Jerome Powell will continue to moderately raise interest rates.
The Federal Reserve is currently in the process of shrinking its $4.5 trillion balance sheet, which the U.S. central bank took on to help support the economy after the housing market crash. As a result, Stockman believes that the Feds move to unwind its balance sheet will bring the bullish economy to a grinding stop.
“Well there is 200 or 300 basis points higher interest rates. That means bond holders are going to be taking 20%, 30%, 40% losses. There is going to be carnage in the bond market, which will stop this economy short,” he said.