The early signs Donald Trump is starting to undermine democracy in America will be more subtle than you think

Expect a series of ideologically driven forecasts from the White House and Republican Congressmen in the coming months showing that their massive tax cuts will supercharge growth and leave the overall US budget deficit unchanged – but don't believe them

Donald Trump will be inaugurated as the 45th US President on January 20, 2017 (Reuters)

Dynamic scoring probably sounds to most ordinary people like the kind of thing that happens when AB de Villiers is at the crease for South Africa with a cricket bat in his hands.

But in economics, this piece of jargon has a quite different meaning. And we can expect to hear those two words a lot more when President Donald Trump swaggers into the White House next month.

Last week, Trump announced that Steven Mnuchin, a former Goldman Sachs trader turned Hollywood movie financier, will be his Treasury Secretary. Mnuchin promptly gave an interview to CNBC in which he confirmed that Team Trump intends to take the main US corporation tax rate all the way down to 15 per cent from its current level of 35 per cent.

“Corporate taxes are one component of revenues to the government,” he explained. “We think by cutting corporate taxes we’ll create huge economic growth. And we’ll have huge personal income [rises]. So the revenues will be offset on the other side.”

Readers may recognise this theory that cutting taxes in the medium term does not reduce government tax revenues since they stimulate so much additional economic growth. This has been the foundation stone of small-state conservative economic arguments – on both sides of the Atlantic – since the 1970s.

It was in those years that Arthur Laffer drew a curve on a napkin and laid out the proposition that between zero per cent and 100 per cent taxation there is a rate at which further increases actually lead to a reduction in revenues, rather than an increase. And if a certain tax is already over that line, the implication is that cutting the rate will increase revenues.

The trouble is that most serious, non-partisan economists, while accepting the basic logic of the Laffer Curve, are intensely sceptical that we can know with any degree of certainty where the revenue maximising rate for any given tax lies. They certainly don’t have any faith, of the sort that Mnuchin and others possess, that cutting tax rates from where they are today will axiomatically boost revenues. That is why, when governments cut taxes, competent fiscal forecasters generally project that overall tax revenues will fall rather than rise, and that the state’s finances will deteriorate.

Of course, such deterioration isn’t a particularly good look for a government that wants to appear fiscally responsible – or for politicians who have previously been screaming about the overriding importance of slashing the budget deficit.

But that is where the magic of dynamic scoring comes in. These are studies that purport to move beyond a “static” analysis of the impact of a given tax cut on the public finances by considering various second round effects, hence the “dynamic” description. So they factor in assumptions (sometimes reasonable, often grossly unrealistic) about how overall demand in the economy (and hence tax revenue) will be boosted by leaving more disposable income in the hands of companies or households and making assumptions about how likely these groups are to spend it, rather than save it.

“Of course you have to have dynamic scoring. It would make no sense otherwise. And we’re going to work with Congress. I think they understand that,” Mnuchin told CNBC.

So expect a series of ideologically driven forecasts from the White House and Republican Congressmen in the coming months showing that their massive tax cuts will supercharge growth and leave the overall US budget deficit (which is still four per cent of GDP) unchanged, or perhaps even falling.

But perhaps something more dangerous is in prospect too. The Congressional Budget Office (CBO) is America’s version of the UK’s Office for Budget Responsibility, a politically impartial official forecaster established by law to judge the likely impact of various budget policies.

Tax cutting-obsessed Republicans in Congress have already successful changed the law to mandate the CBO to incorporate dynamic scoring into its forecasts as of this year. Expect the pressure on the institution to ratchet up to a whole new level under Trump, Mnuchin and the Republican-controlled Congress when they bring forward what they say will be “the largest tax change since Reagan”.

Trump will, presumably, want to see spectacular projected increases in tax revenues from his spectacular cuts in taxes. And if doesn’t get what he wants, it’s just conceivable he might not accept the setback with his usual grace. He may even be tempted to use the powers of the Presidency to intimidate the CBO.

The issue here is not, actually, the economics. This isn’t an argument that tax cuts can never be economically efficient, or that the budget deficit should be the primary concern of politicians. Indeed, there is a strong argument that economic policy makers in the US have erred since the financial crisis by being overly pessimistic about America’s economic growth potential and by paying too much attention to the size of the national debt.

Yet democratic institutions matter. And if ideology and partisan politics contaminate official economic forecasting in America, one of those institutions will be badly undermined.

A man as cavalier about the rule of law and the norms of decent political conduct as Donald Trump was always going to put America’s system of institutional checks and balances to the test if he came to power.

The effective independence of the CBO in the face of the dynamic scoring brigade of Trumpian carpetbaggers and unscrupulous Republican ideologues might well be an early indicator of how well – or not – those checks and balance are working.