A popular meme from a few years ago was based around Heath Ledger’s portrayal of the Joker in the 2008 film, The Dark Knight. In the movie, the Joker contrasts the different reaction to threatening different people.
“If, tomorrow, I tell the press that, like, a gang banger will get shot, or a truckload of soldiers will be blown up, nobody panics, because it’s all ‘part of the plan,’” Ledger’s Joker opined, “But when I say that one little old mayor will die, well then everyone loses their minds!”
These days the deficit is a lot like that.
Currently, it’s easy to imagine (as I memed on my
Facebook page) the Joker saying, “A Democrat runs a trillion dollar deficit
and everyone loses their minds; a Republican does it and no one cares.”
Department announced yesterday that the federal budget deficit for the
fiscal year to date was 23 percent higher than for the same period last year. The
deficit for the current fiscal year, which began last October, stands at $747.1
billion and is forecast to top $1 trillion by the end of the fiscal year.
As some Republicans have noted, the 2017 tax reform bill was
followed by record-high federal revenues, but this was not enough to prevent
the massive deficit for two reasons. The first reason is that federal spending
also reached a record high, $3.36 trillion for the period. Per the Office of Management
and Budget, federal spending has increased dramatically under President
Trump. In 2016, federal outlays were $3.852 trillion and this year the government
is expected to spend $4.529 trillion.
Increased spending is only half the equation, however. While
federal revenues are at a record high, they have grown at a slower rate than
federal spending. This is due in large part to tax reform. While tax receipts did
increase after tax reform, they fell far below the Congressional
Budget Office projection. The OMB tables show flat revenues between 2017
and 2018 when tax reform took effect, followed by a modest increase projected
In 2017, I saw corporate tax reform as necessary to keep
American companies competitive in a world economy where the US corporate tax
rate was among the highest in the world. However, President Trump’s decision to
launch numerous tariff wars in the wake of tax reform has almost totally offset
the benefit of the lower income tax rates, resulting in sluggish growth and
flatter tax revenues. In any case, the dramatic increases in federal spending,
including billions to aid farmers hurt by the unnecessary and ill-advised trade
wars, was the wrong policy prescription after a tax cut.
Under President Obama, Republicans took a hard line on the
deficit and the federal debt limit. Speaker John Boehner, much maligned by
conservatives, used the sequester to cut federal spending in real dollars, not
merely reducing the amount of increases. Increases to the debt ceiling were
paired with cuts to spending. The OMB data shows that federal outlays declined
in 2012 and 2013. One must look back to the Eisenhower Administration to find
similar spending cuts in consecutive years.
Now, as the government approaches the debt ceiling yet
again, there is no sign of fiscal restraint from the Trump Administration. Mr.
Trump’s proposed budget for 2020 is the largest ever at $4.75
trillion. In March, Treasury Secretary Steven Mnuchin
asked Congress to pass a clean bill, one with no spending constraints, to
increase the debt ceiling. Earlier this week, White House Economic Advisor Larry
Kudlow said of the $22.5 trillion national debt, “I don’t see this as a
huge problem at all right now.”
But the debt and the deficit do represent a huge problem, even
if the Trump Administration and Republicans now fail to recognize them as such.
When the deficit tops $1 trillion this year, it will be in the midst of peacetime
and a strong economy. The last time that the deficit exceeded $1 trillion it
was in 2012, in the wake of President Obama’s stimulus spending after the Great
Recession. With President Trump’s massive deficits in good times, there is absolutely
no realistic plan to reduce the deficit at any point in the near future, especially
if the economy sours.
While the debt limit must ultimately be increased to avoid the
financial chaos of a default, it should be paired with spending cuts under the
successful Boehner strategy. However, Speaker Nancy Pelosi is pushing in the
opposite direction. Fortune reported that House Democrats were advocated for a vote that would pair the
increase to the debt limit with a spending bill that would increase the deficit
by as much as $300 billion.
Even the House Freedom Caucus has been silent about the looming
increase to the debt limit. The group has instead focused on rebuking Rep.
Justin Amash for his stance on impeachment. A search for recent comments about
federal overspending and borrowing from caucus members yielded nothing.
It seems that if there are any fiscal hawks left in
Washington that they are in full retreat.