The Post-Mortem on Trump's First Term
Today’s podcast is based on a recent article penned by Maya MacGuineas titled The Debt is Huge Because Trump Kept His Promises. Maya also appeared in David’s documentary The Tax Train is Coming.
Much of what Maya says is that we shouldn’t be surprised by what happened during Trump’s first term since it has been exactly what he campaigned on.
The debt that has accumulated has been a result of President Trump’s campaign promises of steep tax cuts and increased spending on both defense and veterans, and crucially, he promised to not make any changes to Social Security and MediCare. We are now paying the price for it.
The numbers proposed were so huge that they seemed exaggerated and improbable, in other words, the amount of debt that Trump was looking to accumulate over the course of his first term was astronomical.
The Nonpartisan Committee for a Responsible Federal Budget estimated that Trump’s agenda would increase deficits over the next ten years by $4.6 trillion. The numbers at the end of Trump’s first term are even worse due to the extra spending for the Covid-19 lockdown.
In Trump’s first three years he approved $3.9 trillion in borrowing just to pay for the tax cuts he introduced. Any good economist will agree that tax cuts are okay if they are paired with a commensurate decrease in spending, the problem is we didn’t do that.
While all the other economies in the world are paying down their debts, the US is piling debt upon debt. The deficit has never been so high when coupled with an economy that was going as well as it was prior to 2019.
When you add up the additional borrowing that the US made to deal with Covid-19 the impact is immense, and the borrowing is just beginning. The $2 trillion borrowed initially was only the first half of the bridge.
Had we been more fiscally responsible prior to Covid-19 we would not be in the same bind. We would be in a better position to handle something like Covid-19 had we not accumulated so much debt prior to it.
There are a few things that Trump did not follow through on. The business tax cuts have not paid for themselves.
Trickle-down economics is the idea that decreased taxes and increased capital going to corporations leads to an increase in the economy, but that would only happen with a concurrent decrease in spending, which did not happen in this situation.
Discretionary spending is a relatively small portion of the budget, roughly 23% of the economy, and while Trump proposed reducing discretionary spending it actually increased by over $700 billion.
Part of the problem is that Trump ran on not touching Social Security or Medicare and every year that goes by where we do not reform Social Security or Medicare in some way has an economic cost. Every year that goes by where we fail to address these two programs means the fix on the backend is going to become even larger and even more draconian.
According to the CBO Social Security is projected to be insolvent by 2031 when the youngest of today’s retirees turn 73.
Ignoring these programs is not the same as protecting them. It dooms beneficiaries to large abrupt benefit cuts across the board or large tax increases on the population as a whole.
The debt is headed towards a new record, in just a couple of years, it is projected to grow faster than the economy indefinitely. All major trust funds are heading towards insolvency because we have done nothing to fix them.
All of the Covid-19 spending would have been more palatable as we come into the crisis with our fiscal house in order. Whoever is in the White House in January is going to have to put a long-term plan in place to reduce the debt once the economy is strong enough and save Social Security and Medicare.
The scary part is that we are starting to hear more about Modern Monetary Theory and the idea that we can just print our way out of our issues without creating immense amounts of inflation.
Take advantage of tax rates while they are historically low because they are not going to stay at these levels for long.
Mentioned in this Episode:
The debt is huge because Trump kept his promises - https://www.washingtonpost.com/opinions/2020/10/05/debt-is-huge-because-trump-kept-his-promises/