With President Donald Trump actively weighing in and Congress beginning to move on major issues, can we now expect a serious fix for the nation’s tax system and our irresponsible federal budget? Apparently not.
The 2017 budget year will end this month, adding a $700 billion deficit on top of our ever-expanding national debt of $20 trillion. This poses an ongoing threat to the nation’s credit-worthiness and stability.
In the very near term, Congress must raise the debt limit, finalize and pass the 2018 budget, and deal with other critical problems. The most pressing of these is the destruction and suffering in the wake of Hurricanes Harvey and Irma. Based on the cost of Katrina, estimates for Harvey alone begin with the price tag of $160 billion. The National Flood Insurance Program is in de facto bankruptcy. It has borrowed more than $24 billion from the U.S. Treasury to pay for past flood crises and now has less than $6 billion on its treasury line of credit.
Mr. Trump had earlier proposed a $60 billion increase in military spending. And now expanded operations in Afghanistan, at a per-troop cost of $4 million, present new demands.
Finally, Mr. Trump promised a new $1 trillion federal infrastructure program. According to The Economist, America spends less than 1.5 percent of GDP on infrastructure. Private sector infrastructure investment hovers at a meager $100 billion per year.
The Federal Reserve, not controlled by Congress, printed money to lift the economy out of the Great Recession. Now the Fed is acting to reduce its $4.5 trillion balance sheet. Such action adversely affects the economy.
When the economy is strong, as it now is, the budget should be balanced, not burdened by enlarging deficits. A recent Fortune magazine cover warned that “stocks are way too expensive.” Unemployment is nearing record lows, and wages are beginning to rise. The banking industry has recovered. The Conference Board, the business research group, recently reported that consumers’ assessment of economic conditions registered at the highest level since 2001. The GDP increased for the second quarter by a solid 3 percent.
Under these circumstances, why are the president and Congress so determined to cut federal taxes and further stimulate an already strong economy? Good politics. Bad economics.
Based on current federal spending, the Congressional Budget Office has forecast $10 trillion in deficits over the next 10 years. The non-partisan Tax Policy Center projects that, from its broad outline, Mr. Trump’s tax plan would add $3.5 trillion in deficits over the same period.
The president’s plan mostly benefits the rich and upper middle class. Cuts for the top fifth of tax payers would average $19,510. In a recent speech in Missouri, the only part of his plan that he emphasized was cutting the corporate tax rate from 35 to 15 percent. The Guardian reports that this corporate tax reduction will result in a revenue loss of $3 to $7 trillion over a decade.
Mr. Trump’s proposed tax cuts rely primarily on more deficit spending, thereby shifting the burden to future generations. The current younger generation of taxpayers is already short of financial resources, burdened with $1.4 trillion in education debt, unable to buy a first home and often working in low-paying service jobs.
Mr. Trump claims this program will produce growth and thereby magically pay for itself. Bruce Bartlett, author of “The Benefit and the Burden” (2012), served under both Presidents Ronald Reagan and George H.W. Bush and drafted the Kemp-Roth tax bill, the basis of the Reagan tax cuts. Mr. Bartlett disagrees with President Trump.
In a 2016 op-ed in the New York Times, he points out that "the Reagan tax cut played only a secondary role in the 1980s boom" and that Reagan, concerned about deficits, "supported 11 different increases from 1982 to 1988 that collectively took back half of the 1981 tax cut.” Mr. Bartlett also notes that the "economy tanked during the Bush years despite numerous large tax cuts."
As citizens, we have a responsibility for the fiscal health of this country. We need to demand deep spending cuts. And we need to raise taxes. Everyone’s gotta take a hit.
Perry L. Weed is an attorney and founder/director of the Economic Club of Annapolis. His e-mail is email@example.com.