Trump’s National Debt? #2

During the 2016 presidential campaign, Republican candidate Donald Trump promised he would eliminate the nation’s debt in eight years.1 Instead, his budgets would add $9.1 trillion during that time. It would increase the U.S. debt to $29 trillion according to Trump’s budget estimates.2

Trump’s Two Strategies to Reduce the Debt

Candidate Trump had two strategies to reduce the U.S. debt. He promised to grow the economy 6% annually to increase tax revenues. But once in office, he lowered his growth estimate to 3.5% to 4%.

These projections are above the 2%-3% healthy growth rate. When growth is more than that, it creates inflation. Too much money chases too few good business projects. Irrational exuberance grips investors. They create a boom-bust cycle that ends in a recession. Trump’s Fiscal Year 2020 budget lowered annual growth rates down to between 2.4% and 2.9% annually.

Trump promised to achieve 4% growth with tax cuts. In his first 100 days, he released the outline of what would become the Tax Cuts and Jobs Act. It cut the corporate tax rate from 35% to 21% beginning in 2018. The top individual income tax rate drops to 37%. It doubles the standard deduction and eliminates personal exemptions. The corporate cuts are permanent, while the individual changes expire at the end of 2025.

Trump’s tax cuts won’t stimulate the economy enough to make up for lost tax revenue. According to the Laffer curve, tax cuts only do that when the rates were above 50%. It worked during the Reagan administration because the highest tax rate was 70%.

Trump’s second strategy is to “eliminate waste and redundancy in federal spending.” He demonstrated cost-consciousness in his campaign. He used his Twitter account and rallies instead of expensive television ads. He outlined his cost-cutting strategies in his book, “The Art of the Deal.”3

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Trump was right that there is waste in federal spending. The problem isn’t finding it. Both Presidents Bush and Obama did that. The problem is in cutting it.

Any president must cut into the biggest programs to make an impact on the debt. More than two-thirds of government spending goes to mandatory obligations made by previous Acts of Congress. For FY 2020, Social Security benefits cost $1 trillion a year, Medicare costs $679 billion, and Medicaid costs $418 billion. The interest on the debt is $479 billion.

To lower the debt, military spending must also be cut. The most Obama spent was $855 billion in FY 2011. The most Bush spent was $666 billion in FY 2008. Instead of cutting, Trump is breaking all those records. Military spending rose to $989 billion in FY 2020.

What’s left after mandatory and military spending? Only $676 billion to pay for everything else. That includes agencies that process the Social Security and other benefits. It also includes the necessary functions performed by the Justice Department and the Internal Revenue Service. You’d have to eliminate it all to make a dent in the $1.1 trillion deficit. You can’t reduce the deficit or debt without major cuts to defense and mandated benefit programs. Cutting waste isn’t enough.

Trump’s Business Debt Influences His Approach to U.S. Debt

Trump has a cavalier attitude about the nation’s debt load. During the campaign, he said the nation could “borrow knowing that if the economy crashed, you could make a deal.” He added, “The United States will never default because you can print the money.”

Trump thinks about the national debt as he does personal debt. A 2016 Fortune magazine analysis revealed Trump’s business is $1.11 billion in debt. That includes $846 million owed on five properties. These include Trump Tower, 40 Wall Street, and 1290 Avenue of the Americas in New York. It also includes the Trump Hotel in Washington D.C. and 555 California Street in San Francisco. But the income generated by these properties easily pays their annual interest payment. In the business world, Trump’s debt is reasonable.

But sovereign debt is different. The World Bank compares countries based on their total debt-to-gross domestic product ratio. It considers a country to be in trouble if that ratio is greater than 77%. The U.S. ratio is 104%. That’s the $21.516 trillion U.S. debt as of Sep. 28, 2018, divided by the $20.658 trillion nominal GDP.

On Dec. 31, 2019, the U.S. debt was $23.2 trillion. That puts the U.S. debt-to-GDP ratio at 107%.

So far, this high ratio hasn’t discouraged investors. America is the safest economy in the world. It has the largest free market economy and its currency is the world’s reserve currency. Even during a U.S. economic crisis, investors purchase U.S. Treasurys in a flight to safety. That’s one reason why interest rates plunged to 200-year lows after the financial crisis. Those falling interest rates meant America’s debt could increase, but interest payments remained stable at around $266 billion.

But that changed in late 2016. Interest rates began rising as the economy improved. As a result, interest on the nation’s debt will double in four years.

The United States also has a massive fixed pension expense and health insurance costs. A business can renege on these benefits, ask for bankruptcy, and weather the resultant lawsuits. A president and Congress can’t cut back those costs without losing their jobs at the next election. As such, Trump’s experience in handling business debt does not transfer to managing the U.S. debt.

Trump is wrong to assume that the United States could simply print money to pay off the debt. It would send the dollar into decline and create hyperinflation. Interest rates would rise as creditors lost faith in U.S. Treasurys. That would create a recession. He’s also wrong in thinking that he could make a deal with our lenders if the U.S. economy crashed. There would be no lenders left. It would send the dollar into a collapse. The entire world would plummet into another Great Depression.

At first, it seemed Trump was lowering the debt. It fell $102 billion in the first six months after Trump took office.9 On Jan. 20, the day Trump was inaugurated, the debt was $19.9 trillion. On July 30, it was $19.8 trillion. But it was not because of anything he did. Instead, it was because of the federal debt ceiling.

On Sept. 8, 2017, Trump signed a bill increasing the debt ceiling. Later that day, the debt exceeded $20 trillion for the first time in U.S. history. On Feb. 9, 2018, Trump signed a bill suspending the debt ceiling until March 1, 2019.10 It was $22 trillion. In just two years, Trump has overseen the fastest dollar increase in the debt of any president.

Trump’s Fiscal Year 2020 budget projects the debt would increase $5 trillion during his first term.11 That’s as much as Obama added while fighting a recession. Trump has not fulfilled his campaign promise to cut the debt. Instead, he’s done the opposite.

2019 may be seeing the national deficit exceeding $1 trillion. This could be the result of Trump’s $1.5 trillion tax cuts done in 2017. These cuts are a loss to government revenues. When the national deficit increases, the government needs to borrow more since its income cannot cover its expenditures. Such action increases sovereign debt. 12

The national debt doesn’t affect you directly until it reaches a tipping point. A study by the World Bank found that if the debt-to-GDP ratio exceeds 77% for an extended period of time, it slows economic growth.

Every percentage point of debt above this level costs the country 1.7% in economic growth.

The first sign of trouble is when interest rates start to rise significantly. Investors need a higher return to offset the greater perceived risk. They start to doubt that the debt can be paid off.

The second sign is that the U.S. dollar loses value. You will notice that as inflation. Imported goods will cost more. Gas and grocery prices will rise. Travel to other countries will also become much more expensive.

As interest rates and inflation rise, the cost of providing benefits and paying the interest on the debt will skyrocket. That leaves less money for other services. At that point, the government will be forced to cut services or raise taxes. That will further slow economic growth. At that point, continued deficit spending will no longer work.

Contrary to President Trump’s campaign promise to eliminate national debt in eight years, his strategies for tackling it have actually added to U.S. debt and deficit, considerably. These strategies, which have proven unsuccessful, include:

Tax cuts – These substantially decreased government income.
Federal spending cuts – There was a failure to significantly cut expenses in mandatory and military programs, where such would actually make a difference in lowering the national debt.

The considerable addition to U.S. debt may also be attributed to Trump’s perception of the national debt in which he:

Likens sovereign debt to business debt.
Assumes that the United States can just print money.

The Trump administration maintains that economic growth will pay for the added obligations. So far, the gains in GDP have not caught up with the added burdens to U.S. debt and deficit.

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Now please see the “other side” of America’s politically intractable fiscal problems.

Trump’s National Debt? #1

See the real reason that America’s National Debt has increased under Trumps first term!

V.Thomas Mawhinney, 2/21/20

Posted on November 27, 2019 in Budget, Budget Deficit, Congress, Executive Branch, President Donald Trump

By Jon Dougherty

(TNS) On Wednesday, CNS News’ Terrence Jeffrey reported that the national debt has surpassed $23 trillion and shows no sign of stopping.

In fact, Jeffrey said, the debt rocketed skyward by $1.3 trillion since last Thanksgiving Day:

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That is the largest Thanksgiving-to-Thanksgiving increase in the debt in nine years. The last time the debt increased more from Thanksgiving to Thanksgiving was in 2010, when it increased by $1,785,995,360,978.10.

It also equals approximately $10,137.48 per household in the United States.

There will be a knee-jerk reaction from whatever Garbage Party media covers this figure to blame President Trump because it’s “his economy” so it has to be “his debt” too — right?

Wrong.

Trump has made lowering the national debt a priority since before he took office. It was one of his many campaign promises.

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And while presidents do sign budgets into law, the Executive Branch doesn’t write the spending bills.

Trump early on proposed budget reductions that would eliminate worthless federal programs that contribute nothing to the country (except debt).

That budget was rejected out of hand. In fact, more than a few lawmakers at the time simply said it was “dead on arrival.”

No discussion. No debate. No deal. Just dead.

That included Republicans, by the way, who held a congressional majority for the president’s first two years in office.

Even that stellar economist Alexandria Ocasio-Cortez, the bartender-turned-global warming expert, refused to back House “pay-as-you-go” rules.

In August, the Congressional Budget Office projected trillion-dollar budgets with no end in site.

More recently, Democrats have tried to blame tax cuts passed by President Trump and Republicans in December 2017 as responsible for the rising debt.

Wrong.

As Fox News’ chief political analyst Brit Hume explained in a tweet earlier this month, it wasn’t the president’s tax cuts that deepened the federal debt load over the past couple of years because as is always the case when taxes are cut, revenues go up because the economy is stimulated and it grows.

Federal tax revenues rose during the 2019 fiscal year as the economy grew, but spending increased by over $200 billion more, which is why the country ended up running a deficit approaching $1 trillion, according to Congressional Budget Office data released Thursday.

As debt has accumulated during President Trump’s first term, the focus has turned to tax cuts as the culprit. And while it’s simple math to point out that if the government was collecting more tax revenue than it is currently, the deficit would have been narrower, the truth is that revenues did go up modestly — but that revenue growth was just outpaced by an increase in federal spending.

Easy fix then, right? All Trump has to do is refuse to sign budgets and let the government shut down…right?

Of course, he gets pilloried for that, too — by the worthless “mainstream” media, by the Garbage Party, and by Republicans too frightened of being called a name to do the right thing.

Hume is right: We don’t have a revenue problem, we’ve got a spending problem and it’s a one that’s been around for decades.

Our kids and their kids and, possibly, their kids, will remember the current generation of Americans as the least greatest for saddling them with trillions in debt that will take half a century to pay off.

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