Current Fiscal Path Is Unsustainable
The Treasury Department is on track to borrow 955 billion dollars this year, which competes directly against private borrowers for resources. It has to borrow that much because it spends that much more than it takes in. Deficits necessitate borrowing.
We keep hearing about how the recent tax cut is causing those deficits to balloon, that it is a disaster because we are losing revenue, and because the national debt is already higher than the entire gross domestic product. How much of a revenue cut are we talking about? The receipts for 2017 were 3.16 trillion dollars. The projected receipts for 2018 are 3.34 trillion dollars, 3.42 trillion for 2019, 3.61 trillion for 2020, and so on. That works out to a reduction in taxes of exactly zero dollars. The revenue is not projected to decrease at all, but rather to increase by 300 billion dollars or so per year over the next couple of years, and that is not even figuring in the typical under-estimation of the positive economic effects of tax rate reductions. The tax cut they are talking about is the decrease in the increase that they wanted and expected.
Though tax rates will be declining, taxes, as in actual revenue collected, are not projected to fall at all. Why, then, is the 2018 deficit expected to be close to a trillion dollars, and more than a trillion by some counts in future years? The obvious answer, that politicians love to ignore, is that spending is increasing way beyond the absurd level that it already is.
Projected expenditures increase from 3.98 trillion dollars in 2017 to 4.41 trillion dollars in 2019, a 430 billion dollar increase. The deficit is definitely not from the tax rate cut. It is definitely not because the government is not taking enough of your money. It is solely because they are drunk on spending. Spending your money buys campaign contributions and voting blocks for politicians.
President Trump, in the introduction to his budget proposal, said that the current fiscal path is unsustainable and that future generations deserve better. By better, the implication is that we, the present generations, should stop stealing from them, and that is certainly true. He goes on the say that his budget makes hard choices to stop wasteful spending and lower the national debt, and that does make for nice political sentiment, yet his own budget proposal shows annual federal spending increasing by one trillion dollars by 2022. That is a 25 percent increase in annual spending in just five years. That does not sound like hard choices to me. It sounds, rather, like drunken sailor choices (sorry drunken sailors).
The budget assumptions also include a 27 percent increase in gross domestic product over the same period of time. That is growth of about 5 percent per year, a pretty rosy prediction with the possibility of a raging trade war and realizing that an economic recession during that time is not an unreasonable assumption, given the current state of the economy and financial markets and the stage of the economic cycle in which we find ourselves,
It certainly is impossible to predict the future, and some assumptions need to be made on which to base fiscal decisions, but betting on historically unreasonable growth rates to build in permanent expansions of the federal government and expenditures does not appear to be a sustainable path. President Trump is only one of the politicians who have a hand in determining the extent of government, but he is showing no more restraint in his budget than any of the others or any of his predecessors. He talks about American greatness, but a great America is made of great people and businesses, not big government.
Dan McLaughlin is the author of “Compassion and Truth — Why Good Intentions Don’t Equal Good Results.” Follow him at daniel-mclaughlin.com.