Despite the strong economy, the Treasury Department reports that
the federal budget deficit surged 77 percent in the first four months of the 2019
fiscal year. The total deficit for the current fiscal year, which began on Oct.
1, has already reached $310 billion compared to $176 billion for the same
period last year per the Washington
While it is tempting for the two parties to point fingers at
each other over the increase in the deficit, the truth is that both are to
blame. The tax reform bill caused corporate tax revenues to plummet by about 25
percent, equivalent to a $17 billion drop in revenues. At the same time,
spending increased by nine percent. The largest increases were for Medicare,
which grew by 16 percent, and military spending, which grew by 12 percent.
“It’s big tax cuts combined with big increases in spending
when they already had big deficits,” said former Senate Budget Committee
Chairman Kent Conrad (D-N.D.). “So, guess what, it’s craziness.”
White House economic advisor Larry Kudlow told The Post, “We
are making an investment in America’s future… and if that means we incur some
additional debt in the short run, so be it.”
“Growth solves the problem,” Kudlow added. “That will solve
all of these problems and people will be very prosperous.”
In theory, the reductions to the corporate tax rate will
spur investment. The resulting economic growth will reduce the deficit as a
share of GDP and make the problem less pressing.
So far, that has not happened. As Resurgent reported last October, federal revenues were flat for the 2018 fiscal year. Total federal receipts were $3.329 trillion in 2018 compared with $3.316 trillion in 2017. Tax revenues from individuals increased by one percent but were corporate tax revenues fell by 30 percent. FY 2018 included three months — October, November and December 2017 — at higher tax rates. This means that the 2019 revenue picture looks even worse. Even though federal revenues did not fall after tax reform, the fact that they did not increase as they would have in a growing economy is a contributor to the growing deficit.
One drag on economic growth is President Trump’s trade war.
Tariffs have impacted segments of the US economy and uncertainty over future
trade policies could cause companies to scale back expansion plans. Many
economists predict a slowdown in growth in 2019 due to the taxes on international
Prior to the tax reform, the United States had the third
highest corporate tax rate in the world. While tax reform was needed to
make American companies more competitive in the global marketplace, Republicans
completely dropped the ball on getting federal spending under control. During
the Obama Administration, House Republicans under John Boehner forced the first real
spending cuts in consecutive years for the first time since the Eisenhower
Administration, but fiscal restraint has been sorely lacking during the Trump
Administration. Where Republicans went to the edge of the fiscal cliff to force
spending cuts under Obama, the GOP forced a government shutdown last December to
try to force Congress to borrow and spend more money for a border wall.
Prospects look bleak for any deficit reduction in the near
future. Entitlement programs such as Social Security, Medicare, and Medicaid
make up more than 60 percent of federal
spending but President Trump has consistently refused
to consider cuts to entitlement programs. This is not without good reason.
Even conservative Republican voters balk at cutting these programs and many
refuse to even acknowledge that they are entitlements. Paul Ryan, the GOP’s
chief advocate for entitlement reform, has returned to private life.
The third largest spending program is the military, which
represents about 16 percent of all federal
spending. The Trump Administration is about to propose
increasing military spending by shifting defense funds to an account for Overseas
Contingency Operations. These funds are not capped under the Budget Control
Act, unlike traditional military spending.
The increased borrowing comes at a particularly bad time
since interest rates are beginning to rise back to normal rates following the
recovery from the Great Recession. The government is forecast to spend $383
billion on interest payments this year. By 2022, that amount will increase to
about $581 million, almost as much as we currently spend on defense.
As the old saying goes, to get out of a hole, the first step
is to stop digging. The United States has yet to take even this first basic
step. Thus far, the only thing that the parties have been able to agree on is
to keep spending at ever greater levels. With the US national debt already at more than 100 percent of
GDP and the deficit projected to be at more than $900 billion for the year,
American debt is approaching Greek and
Italian levels. If there is a national emergency, it is the looming debt crisis,
but no one in Washington seems to care.